Based on a survey of more than 1,000 chartered accountants across England and Wales, the latest Business Confidence Monitor (BCM) from The Institute of Chartered Accountants' (ICAEW) shows a record rise in confidence to 4.8 at the end of June 2009, from -28.2 at the end of March 2009.

This is the biggest rise for two years, suggesting the UK recession is at an end. Based on this, ICAEW predicts that GDP will rise 0.5 per cent this quarter. Its forecast comes after the economy shrank by 0.8% in the second quarter of the year.

This quarter’s change is the largest quarterly improvement seen since BCM began. This cautious optimism is underpinned by expected rises over the next 12 months in 13 out of the 14 financial performance indicators detailed within the BCM. This is in contrast to the picture earlier in the year when the majority were expected to contract.  ICAEW chief executive Michael Izza warned against "underestimating" the challenges ahead for businesses.

But have the accountants at ICAEW got the numbers and predictions right? 

Business levels in the services sector are still below normal, but less so than in the previous three quarters, according to the latest CBI Service Sector Survey announced on 24 August 2009. But downward pressure on profits is being compounded by deflation in the sector. The quarterly research, conducted between 29 July and 12 August 2009, covered 184 service-sector firms. They are divided into Business and Professional Services, such as accountancy, legal and marketing firms, and Consumer Services, including hotels, bars and restaurants, travel and leisure:

• In Business and Professional Services, the value and volumes of business both rose very slightly on the previous quarter for the first time since May 2008, though both measures remain “below normal”, for the seventh consecutive quarter.
• In Consumer Services, business values and volumes fell slightly, at much slower rates than in the previous three quarters.
• Looking forward to the next three months, firms in Consumer Services expect business values to stabilise and volumes to decline marginally, and in Business and Professional Services, they are expected to rise, with more firms expecting rises than at any other point since November 2007.

However, the situation remains difficult for firms. Profitability fell in both sub-sectors as prices fell sharply. In Consumer Services, 32% of firms cut prices and just 11% raised them, giving a balance of -21%, the lowest since the survey began in 1998. The balance for Business and Professional Services was lower still at -31%. In both sub-sectors, firms expect prices to fall, but at slower rates, over the next three months.

Maybe it depends on what questions were put to the 1,000 chartered accountants in the ICAEW survey. 

What do you think – is the economy still pretty well messed up or are there real signs of a sustainable recovery.

By Martin Pollins
mpollins@bizezia.com