IBR

Grant Thornton IBR: Latest findings

Global business survey finds optimism has increased by a significant 23% in the past year. However, whilst the global glass is half-full, Brexit uncertainty has left the UK’s half empty.

  • Global business optimism up from 38% to 49% 1
  • UK business optimism down from 26% to 20%
  • EU business optimism up from 34% to 39%
  • UK Export prospects up from 15% to 19%

LONDON – Globally, business optimism is at its highest level on record (49%) heading in to Q2 of 2017, according to the latest Grant Thornton International Business report.2 The findings, from the most recent quarterly business survey of 2,600 businesses in 36 economies, are a positive signal that business leaders have commenced 2017 with a sense of renewed stability.

The UK, however, has not followed global trends and has seen optimism drop by 6pp since Q4 of 2016. At 20%, the UK’s optimism level has fallen to a four-year low. This drop in confidence has been reflected in fundamentals such as the decrease in expectations of investment in R&D, which is down 6pp from last quarter to 18%. In addition, projected profitability is down 4pp to 42% and plans to invest in plant and machinery are down 2pp to 40%.

On the other hand, encouragingly, the UK has seen export expectations increase to 19% since last quarter (+4pp). This sits above the global figure, which has seen a 2pp increase to 18%.

Across the European Union, since last quarter, there has been a collective rise in optimism from 34% to 39% (+5pp). In addition, it appears that fear of political turbulence has not affected confidence in European countries where elections are set to take place: Germany (+13pp), France (+4pp).

Robert Hannah , chief operating officer at Grant Thornton UK LLP, commented:

“In the UK, we now need to find ways to incentivise new exporters and ensure that we ease the barriers to entry of new markets. Success in a post Brexit UK means companies acting now to build on and grow connections in to new markets, and, to work collaboratively with other companies in their supply chain to enhance accessibility to international trade.

“UK businesses need to identify and capitalise on Brexit opportunities. This may be achieved through an evaluation of processes and controls, re-structuring business models, accessing new international markets, utilising new trade deals or taking advantage of opportunities presented domestically.

“Businesses need to determine where and how they will be impacted the most in order to effectively put in place the necessary steps to both mitigate risks and realise benefits.”

Turning to the labour market, in the UK, employment expectations have dropped since last quarter to 36% (-2pp) as unemployment reaches its lowest levels since the 1990s. Additionally, only 16% of businesses anticipate pay-rises in excess of inflation (-4pp).

This is further exacerbated by a skills shortage being cited as a problem for 36% of UK businesses, meaning one of two things – a buoyant labour market or an early start to the deterrent effect e.g. EU workers looking for employment opportunities outside of the UK due to Brexit uncertainty. Lack of skilled workers is not a problem isolated to the UK alone, with it also being highlighted as the second biggest business constraint globally (+1pp).

Robert Hannah added:

“The signing of Article 50 was a starting point for UK businesses to gain further clarity on navigating the Brexit process. A shortage of skilled workers remains a key issue and, as such, businesses want assurance that EU citizens currently working in the UK will have a right to remain. The looming threat that EU citizens may lose their rights to work in the UK is creating huge uncertainty for people and the organisations that employ them. This is not isolated to one sector alone, but can be seen from financial services to farms; from care homes to construction. A unilateral announcement by the government to secure EU workers’ rights to remain would be a strong positive signal to the market.

“Globally, it would appear that businesses are getting in to their stride and adapting to a market where uncertainty is the only certainty. We now need UK businesses to follow suit and inject a new sense of confidence back in to the market.”

Sources:

1.  The US has been the bolster to the global increase, with confidence levels surging from 54% in Q4 of 2016 to a 14-year high at 80%. In the east, at 48% (+2pp since last quarter), Chinese businesses are experiencing the highest levels of optimism since Q3 of 2015.

2. Grant Thornton’s International Business Report Began in 2003