Home Business NewsBusiness UK business confidence remains strong as firms boost AI investment to offset inflation concerns

UK business confidence remains strong as firms boost AI investment to offset inflation concerns

by LLB Editor
19th Jul 23 10:53 am

UK businesses remain confident that activity will continue to grow over the coming year, according to the latest Accenture / S&P Global UK Business Outlook. Plans to increase investment, including in AI, helped to offset concerns surrounding high inflation and rising interest rates.

The net balance of firms expecting activity to increase over the next 12 months stood at +40% in June, marginally down from +43% in February, but well above the record low registered in October 2022.

UK firms remain more confident about the future than their European counterparts, where optimism is +19%, while the global average is +28%. Ireland is the only country to register a higher degree of positivity than the UK.

The latest results show that inflation expectations remain stubbornly high (+51%), but have eased from earlier in the year (+59%). This is especially true for staffing costs, where a net balance of +72% of businesses predict wages to rise over the next 12 months, again down from 77% in February.

The research suggests that most companies are raising their prices to offset the impact of higher costs. In total, +45% of firms forecast an increase in their prices. This figure has fallen steadily over the last 12 months but remains three times higher than the proportion of firms (+15%) expecting a net gain in profits.

Strong expectations for business activity in the UK were reported alongside positive predictions for employment (+21%), capital expenditure (+5%), and research and development spending (+3%). Manufacturers plan to increase capex spending by the greatest amount in over a year, as they look to boost automation and raise productivity.

That said, with interest rates set to remain high and dampening demand, overall manufacturing output expectations dropped to +43%, down -10% on February. The fall was particularly stark among producers of basic materials such as chemicals, metals, and timber. In comparison, expectations in the services sector dipped only slightly, driven by positivity around financial services demand and international tourism.

Matt Prebble, Strategy and Consulting Lead for Accenture in the UK and Ireland, said: “British businesses continue to be resilient and optimistic, despite the current economic challenges. Although still a concern, businesses expectations on inflation and staffing costs are falling, a trend that is required to ease margin and pricing pressures.”

“In an era of high inflation when many firms’ margins are under pressure, the question for executives is how to transform and reinvent themselves despite these immediate challenges. It is encouraging to see that British firms are already taking action on this front by investing now to improve productivity, including new investments in advanced technologies like AI and automation.”

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