Confidence among businesses dropped for the first time in two years, according to the latest Institute of Charted Accountants for England and Wales (ICAEW) and Grant Thornton UK Business Confidence Monitor (BCM).

The BCM’s confidence index fell from 37.3 in the first three months of 2014 to 32.2 this quarter.

Despite UK growth expectations for the third quarter of 2014 remaining positive at 0.9%, the report also predicted a slowdown in the last quarter of the year, as turnover and profit growth projections level off.

Business investment is also expected to dwindle, according to the findings.

Stephen Ibbotson, director of business at ICAEW, described the fall in confidence as a sign "businesses are becoming more realistic about the future."

The imbalances in our economic recovery that were masked by rising confidence continue to persist – our exports remain weak, and investment isn’t maintaining momentum," he explained.

"We look to the Bank of England and the government to work harder to ensure that the recovery is placed on a broader footing before we see this still relatively high optimism erode away."

As growth in the UK economy continues to outstrip that of its key export markets, domestic sales remain the primary driver.

According to the report, the consequent focus on domestic demand has led UK businesses to increase staff levels.

With employee numbers expected to increase 2.5% next year and salary growth remaining modest, an increasing number of businesses are facing a shortage of skills, particularly in the construction, utilities and IT sectors, according to the report.

However, remuneration is expected to rise above inflation over the next 12 months.

Scott Barnes, chief executive officer of Grant Thornton UK, warned that despite enduring positive confidence levels: "Business is however anticipating a slight slowdown in investment, and sourcing the relevant skills has become a greater challenge for some, particularly in construction."

He added: "As the labour market continues to improve, and staff turnover increases, it is important that we ensure that those entering the workforce are adequately equipped with the skills needed to take the economy forward."


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Grant Thornton UK