Outlook brightens as health implications of Omicron become clearer
As the Government narrative moves to ‘living with Covid’, concerns over further lockdowns have receded. This has led to a more optimistic outlook for 2022. The economy is predicted to grow between 4% and 6% - the fastest growth in the G7 – before slowing to more moderate levels in following years.
Positive growth forecasts are however tempered by a growing number of headwinds – none more than inflation.
The Bank of England (BoE) has revised inflation expectations up – with their forecasts now for highs of 6% in Spring 2022. This will put pressure on interest rates, but we do not expect large moves this year.
The government is banking on inflation coming into line - through BoE measures, but also through productivity impacts mitigating against a wage price spiral.
Despite this, early signs are that productivity increases and interest rate rises are unlikely to be the mitigation, and we may be in for a longer period of inflation being above target.
How are businesses feeling across the UK?
Our Business Outlook Tracker regularly surveys business leaders across the country to understand their expectations and priorities. Here is what our December survey told us.
Net optimism towards the future of the UK economy down 22.8% since June.
Net pessimism on revenue growth up 43.9% since August.
Businesses expressing concern over future funding grew by 53.5% between October and December.
Number of companies expecting to make a profit over the next 6 months has almost halved (48%) since August.
Outlook darkens as uncertainty rises
Businesses appear less bullish as to whether the economy will grow or decline, with respondents moving away from being either optimistic or pessimistic. It's unclear if this is due to rising uncertainty, caused by the impact of Omicron, or reflective of potential stability in the UK's economic performance.
While business leaders may be unsure of wider economic trends, concerns are mounting over their own business performance. Firms are expecting to turnover less, struggle more with funding, and ultimately make less profit than they were six months ago.
Despite positive forecasts for the UK economy, from the likes of the Office for Budget Responsibility (OBR), on a practical level business are having to navigate a myriad of challenges. These include access to skills, moving to a hybrid workforce, and inflation – all of which look set to continue well into 2022.
Dave Munton, Partner and Head of Markets and Clients
"The mid-market will need to rely on the resilience it’s developed over the last 21 months or so and continue to adapt to the changing external environment. Going into the new year businesses need to ensure that they maintain good communication with all stakeholders and focus on moving forward with confidence – ensuring a level of flexibility in their plans to allow them to respond quickly to market changes as needed.”
What's the outlook in your region?
Use the map below to see what we found in your area
How does the UK compare to other countries?
Twice a year our International Business Report surveys 10,000 business leaders across the globe to better understand their views and expectations, and where the UK sits on the global scale.