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In the week Alistair Darling is due to make his first Budget speech as Chancellor, KPMG’s survey of senior executives around the country shows that despite ongoing volatility in the financial markets, other businesses are feeling quietly confident about their own prospects.

In the throes of an economic slowdown

Scott Cormack, head of markets at KPMG in the UK, said that the survey acted as a timely snapshot of what was keeping Britain’s chief executives awake at night.

“What is most interesting is that there appears to be a real dichotomy between the lack of confidence in the wider economy and that of the non-financial businesses themselves. These findings suggest that their fundamentals remain sound,” he added.

The survey suggests that 88 per cent of UK businesses believe we are in the throes of an economic slowdown, however, 60 per cent nevertheless say that prospects for their own company over the next 12 months are either good or very good.

Similarly, 70 per cent do not expect to make job cuts this year, but 82 per cent expect other companies to do so.

Cormack explained that this begged the question as to why Britain’s businesses were more optimistic about their own fortunes than they were of the wider economy.

“Is it that they are being caught up in the hype surrounding the credit crunch and therefore feel compelled to say that we’re experiencing a downturn, when in actual fact, things are healthier than they seem? Or is it that Britain’s businesses are just a supremely confident and robust bunch who believe they can weather the storm?” he asked.

Prospects overseas 

Looking more closely at the volatility in the capital markets, somewhat surprisingly, almost two thirds (63 per cent) do not expect generally tighter borrowing conditions as a result of the credit crunch to adversely affect their own businesses – presumably because their own balance sheets are strong.

There are also encouraging signs that businesses are becoming more positive about their prospects overseas, with more than three quarters (79 per cent) believing that the UK is either ‘competitive’ or ‘extremely competitive’ in Europe, – a reflection, perhaps, of the recent weakness of the pound against the Euro, which has helped UK exporters.

In spite of all this optimism, however, the survey also gives the Chancellor much to think about, with more than a third (37 per cent) of respondents feeling that the present Cabinet is not friendly towards entrepreneurs.

Cormack said that much had been written over the last few months about the Government’s perceived attitude towards enterprise, particularly in light of the recent changes to Capital Gains Tax.

He added that it will be interesting to see if and how this is tackled on Wednesday.

“Certainly what is clear from our findings is that clarity, transparency and consistency are far more important to business than changes to the actual tax rate itself,” Cormack said.

Skills shortage major barrier to growth 

According to the survey, the Chancellor should do more to encourage an entrepreneurial culture by focusing on initiatives such as reducing red tape (93 per cent), providing greater financial benefits for innovators (77 per cent), teaching business skills in schools and colleges (72 per cent) and providing better local support for enterprises (74 per cent).

Cormack pointed out that businesses feared the current skills shortage in the UK was a major barrier to growth and was therefore something that needs tackling urgently.

A total of 55 per cent of businesses believe that the UK falls short in terms of skills, particularly with regards to numeracy and literacy. Cormack said that this was cause for concern for a world financial centre.

While there was also a clear call for the Government to be more robust with regard to climate change legislation, it was striking that almost two thirds (65 per cent) feel that climate change and associated regulation provides an opportunity for the country’s entrepreneurs.

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Related links 

• KPMG