Home Business NewsBusinessBusiness Growth News UK business confidence jumps to highest level in a year as economic outlook improves

UK business confidence jumps to highest level in a year as economic outlook improves

by LLB Finance Reporter
14th Mar 23 8:14 am

UK business confidence rebounded in February to its highest level in 12 months, according to the latest Accenture / S&P Global UK Business Outlook, as expectations towards future activity picked up sharply from a record low in October.

At +43%, the net balance of manufacturing and service sector firms expecting activity to increase over the next 12 months was the strongest recorded in a year, and marked a significant uptick from the +18% registered in October 2022.

UK companies were more confident than almost all of their European peers, with levels of optimism nearly double the average seen in the eurozone (+23%). Notably, business confidence on a global scale was also at its highest for a year (+32%), but remained lower than the UK average.

The boost to UK business expectations reflected growing confidence in nearly all of the 14 sectors covered by the survey, as firms predict a pick-up in customer demand and the easing of inflationary pressures. Hospitality firms registered positive sentiment for the first time in a year (+22%), with hopes that tighter budgets will lead households to spend on domestic “staycations” rather than holidays abroad.

Fewer UK firms predict an increase in their output prices, with the net balance falling to the lowest since June 2021 (+50%), though levels remain historically high. Businesses widely hoped that input cost inflation would not be as severe as last year, however wage inflation remains a key concern with salary pressures expected to persist at above average levels (+21%).

Despite this, the easing of price pressures and the improved demand outlook mean companies are hopeful of boosting profits over the next 12 months. The net balance of firms expecting a rise in profit levels turned positive for the first time in a year (+16%), with manufacturers proving more optimistic than services companies.

Jobs forecasts strengthen, but investment plans lag

With business activity and profit forecasts improving, UK businesses signalled greater optimism towards hiring in February. The net balance of firms predicting a rise in employment more than doubled to +26%, after hitting a two-year low of +11% last October. Firms suggested that labour shortages will continue to pose an issue, although the proportion of businesses confident of finding skilled staff jumped from 34% to 44% in February.

Predictions for capital expenditure and research & development plans were less encouraging. The net balance of firms expecting an increase in capex spending stood at +5%, although this had risen from -7% in October. At the same time, firms expect R&D spending to continue to fall (-3%), suggesting that tight budgets could threaten opportunities for growth.

Commenting on the findings, Matt Prebble, Strategy & Consulting & Lead for Accenture in the UK & Ireland, said: “The renewed optimism among UK businesses once again demonstrates their resilience in the face of economic uncertainty. To build on this and continue to grow, firms must adopt a strategy of continuous reinvention that will enable them to adapt to future challenges. With this mindset, they can lay the foundation for long-term success.”

“With employment levels expected to increase, wage inflation understandably remains a concern for many firms. Businesses should therefore be empowering employees to focus on higher value activities that fuel productivity through the use of technology, helping to drive growth as the economy rebounds.”

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