The Services sector is driving business confidence and the outlook for growth, according to a new quarterly barometer.
The results from the latest Chartered Institute of Credit Management (CICM) Credit Managers’ Index (CMI) for Q2 2015, show a continued renewal in business confidence with an all-time index high (60.7).
The index, sponsored by Tinubu Square, is important because it gauges nationwide levels of credit being sought and granted by credit managers across both the manufacturing and services sectors. It therefore acts as a primary indicator of actual levels of business being conducted.
Despite the previously robust index scores in manufacturing, the sector took a significant hit and now stands at 59.2, a marked decrease of 2.43. The services sector, however, continued its impressive rise, closing up by 1.77 to an all time record high of 61.3, contributing towards the headline index’s 0.49-point increase to 60.7, 1.5 points above the index at the same time last year (59.2).
New credit applications have increased from the previous quarter, up by 1.3 to 67.7 –building on the improvements in Q1 2015 of 4.2. Despite this, credit sales have seen a 0.8 decrease on Q1 2015 to 70.2, representing a downward trend of three consecutive quarters.
The survey also looked at how companies manage their own trade credit risk, finding that over a third (36%) believe they are exposed to greater risks than they should be. For those already using dedicated software for Trade Credit Risk Management (TCRM), 76% stated reporting and analytics were the most important features to them, highlighting the role software can play in giving credit managers complete and actionable insight on their risk exposure.
Philip King, Chief Executive of the CICM, says that the index reveals some interesting trends regionally, with every region other than the North East expanding.
“For the second consecutive quarter all 18 sectors reported expansion. Q2 GDP was 2.6% higher compared with the same quarter a year ago and 5.2% higher than the pre-economic downturn peak of Q1 2008, signs that the economy is continuing its slow but steady recovery.”
Sébastien Clouet, Marketing Director for Tinubu Square adds that the continued success of the UK economy and companies eyeing expansion is great to see: “But the signs that a third do not have full visibility of the credit risks they are exposed to is a concern. As sectors take steps to expand, it is critical that they look closely at the processes and software they use to monitor risks across the business, and avoid scaling up those risks.”
All 18 industry sectors reported good news in the first quarter of 2015, with Industrial Goods and Services (58.6), and Construction and Materials (63.5) attracting the most attention, whilst notable performers were Chemicals (58.5) and Technology (66.3). The good news was also spread evenly across the regions, especially in the Midlands.
The latest CMI prompted some 400 responses from credit managers in companies of various sizes broadly split by region, although slightly weighted to business in London and the Southeast.
The CMI is a diffusion index, producing ‘scores’ of between one and 100 (typically in a range of 40 – 60). Ten equally weighted factors are included – three favourable and seven unfavourable – and the index is calculated on a simple average of the 10 factors.