UK ( Parliament Politics Maganize ) – In October, UK business confidence experienced a notable dip to its lowest level of the year, marking the second successive fall. This decline, as revealed in the latest quarterly UK Business Outlook by Accenture and S&P Global, is attributed to concerns surrounding the cost of living and heightened interest rates, despite expectations of inflation easing.
The report indicates a decrease in the net balance of firms anticipating an increase in activity over the next 12 months, dropping to 37% in October from 40% in June and 43% in February. Specifically, the UK service sector witnessed a decline in optimism to 36%, with worries about the impact of interest rate hikes on consumer spending and borrowing.
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Notably, the hospitality sector bore the brunt of these concerns, emerging as the sole sub-sector that did not report a positive sentiment during this period. Several manufacturers emphasized their optimism, attributing it to expectations of enhanced output through new product launches, technological advancements, and prospects of reshoring.
The survey also indicated a collective anticipation among firms that cost inflation would decelerate, resulting in less steep price increases. Nevertheless, expectations for wage growth remained at near-record levels.
The prospect of higher interest rates is influencing investment plans, with a slightly higher number of firms anticipating a reduction in research and development (R&D) expenditure in the upcoming year.
Despite these challenges, the report, encompassing responses from 12,000 businesses, including 1,400 in the UK, revealed that UK firms exhibit greater optimism compared to their international counterparts.
Despite Challenges, British Business Confidence Remains Above Global and European Averages
While facing ongoing changes and broader economic challenges affecting interest rates, coupled with high prices impacting consumer spending, business confidence in Britain still stands relatively strong. The global average is +25%, whereas the European average is +16%, marking a 3% and 9% decline, respectively.
Ewan Mackay, the Strategy and Consulting Lead at Accenture in the UK and Ireland, noted, “It’s no surprise that corporate confidence has wavered in the face of ongoing change, with wider economic challenges impacting interest rates and high prices putting a dent in consumer spending.”
Despite the positive projections for the next 12 months, businesses must proactively seize the opportunity to transform these expectations into tangible outcomes, especially in the face of ongoing economic uncertainty. Taking decisive actions now is crucial.
Even as the UK economy experiences stagnation in the third quarter, with GDP showing no change from August’s figures (a mere 0.2% increase), businesses should persist in adhering to strategic investments.
Business Projections and Strategic Imperatives: Navigating Economic Uncertainty
It is imperative to focus on recruiting top-tier talent and integrating the most relevant technologies into their core operations, positioning themselves strategically for future growth.
In September, business confidence in the UK experienced a decline to 36%, marking a five-point decrease from the 18-month peak of 41% in August. This shift was attributed to a decrease in both economic optimism and anticipated trading prospects for the upcoming year, as reported by the Lloyds Banking Group.
Despite the decrease, confidence levels remain higher than those observed in the initial three months of 2023 (20%). In terms of trading prospects, 52% of businesses (down five points) anticipate stronger activity in the next 12 months, while 11% (unchanged) expect weaker outcomes. Consequently, the net balance fell by five points to 41%, compared to 46% in August.
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Marginal Increase in Pricing Expectations in September: Response to Inflation
As a result, the net balance dropped by six points to 30%, though it remains the third-highest level seen in 2023. In general, confidence levels in the United Kingdom continue to surpass the 22-year average of the Barometer, standing at 28%.
This reflects a positive trend in confidence throughout 2023, as the monthly increases have consistently outweighed any subsequent declines in the following months.
In September, there was a slight uptick in pricing expectations, with a one-point increase to 57%. According to the Barometer, businesses are giving priority to preserving or enhancing their profit margins, likely in response to inflation.
The percentage of firms intending to reduce prices decreased to 3% (down two points), while those planning to raise prices also saw a minor decline by one point (60% from 61%), offsetting some of the overall change.