Home Business News UK headline index has fallen to its lowest of +18% since 2009, but remains stronger than European peers

UK headline index has fallen to its lowest of +18% since 2009, but remains stronger than European peers

by LLB Finance Reporter
14th Nov 22 7:46 am

UK business confidence fell by -10% to its lowest level in at least 13 years in October, but was stronger than European peers, according to the latest Accenture / S&P Global UK Business Outlook.

At +18%, the net balance of manufacturing and service sector firms expecting activity to increase over the next 12 months was the lowest recorded since 2009. The latest results compared with net balances of +28% in June and +56% in February.

However, despite tough economic conditions, the business outlook maintained a positive projection, with around 41% of surveyed firms expecting output to rise, against nearly one-quarter (23%) that project a decline.

Nearly all (12) of the 14 sectors covered by the survey predicted growth, led by strong expectations among manufacturers of transport and electrical goods. Hospitality was the only industry to signal a pessimistic outlook, with fears of reduced customer spending and high energy costs.

UK companies were much more confident of a rise in activity than other countries in Europe (+4%), while firms in Germany and Spain gave negative projections for the next 12 months. The UK firms’ outlook was also higher than the global average of 17%.

Inflationary pressures remain elevated, with 80% of firms expecting to raise their salaries over the next 12 months in light of the cost-of-living crisis and tight labour market conditions. Selling prices are also likely to rise sharply, albeit not quickly enough to offset a negative outlook for profits. Likewise, -13% of firms expect lower earnings over the next 12 months.

At the same time, pessimism about profits has led firms to plan reductions in both capital expenditure (capex) and research & development (R&D) spending. Capex and R&D forecasts were the lowest seen since the drop during COVID-19 in 2020, with net balances of -7% and -8%, respectively.

Concerns over hiring skilled staff persist

Employment is still expected to rise, although hiring intentions did fall to a two-year low. Sentiment among businesses on hiring the skills they need over the next 12 months remains broadly unchanged from 2021, although the proportion of firms lacking confidence has fallen marginally from 40% to 35%.

Only half of firms surveyed were confident about recruiting entry-level staff, while only 29% expect to find experienced candidates. Businesses are most likely to prioritise hiring employees with Operations (28%), Sales & Marketing (18%) and Digital skills (15%).

Simon Eaves, Market Unit Lead for Accenture in the UK & Ireland, said, “As we head towards what is likely to be a tough winter for the UK economy, business confidence has understandably been shaken. However, many British companies continue to demonstrate resilience in the face of economic difficulties.

“Hiring plans remain positive and overall optimism, whilst muted, is higher than many of our European counterparts. During these challenging times, businesses should stay focused on the long-term and plan for the next growth cycle to remain competitive.

“They can do this by seeking to reinvent their operations across the whole enterprise, invest in new technologies and skills, and embed sustainability in everything they do.”

Profit forecasts are negative in most regions, but with investment planned across the North West and West Midlands

With profit forecasts widely downbeat, plans to reduce capital expenditure and R&D spending were also observed across most parts of the UK. Only businesses in the North West forecast higher levels of both capex and R&D spending in 12 months’ time (+7%).

Businesses in the West Midlands also predict a strong balance of business activity against employment, of +17% and +15% respectively.

More widely, businesses across the UK expect activity levels to improve. Only businesses in Northern Ireland expect a fall in activity (net balance -12%), with a negative employment projection.

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