International Business Report

UK business optimism rises heading into new year, whilst uncertainty remains a theme for.....

UK business optimism rises heading into new year, whilst uncertainty remains a theme for 2016 - Grant Thornton UK LLP

New research from Grant Thornton’s International Business Report (IBR) reveals that optimism amongst UK businesses rose in the final quarter of 2015 to 73%, representing a six percentage point uptick from the previous quarter. Within Europe, the UK was the second most optimistic economy, behind Ireland (88%).

Globally, business optimism heading into 2016 stands at net 36% - only slightly down from the previous quarter and just above the 35% recorded a year ago. For the first time since the financial crisis, it is the EU which provides the bedrock of stability. Net 38% of EU businesses are optimistic about their economy over the next 12 months, exactly the same as in Q3 and Q1. Meanwhile, the US has seen optimism fall from 74% to 50% in Q4, the biggest fall of any of the 36 countries surveyed.

Optimism in the UK was reinforced by factors such as export prospects rising 11pp to 23%, profitability expectations rising 22pp to 63%; and rises in the number of companies planning investment in plants and machinery (up 14pp to 53%) and research and development budgets (up 8pp to 25%).

Similarly, less UK businesses expressed concern over the availability of skilled employees, with 21% pointing to this as a potential constraint (a 10pp drop from the previous quarter); and the number of businesses expecting an increase in employment rose 8pp to 40%. The UK also featured amongst the three countries least concerned with global economic uncertainty in the coming year.

Robert Hannah, Chief Operating Officer at Grant Thornton UK LLP, commented: "In many ways, the UK's optimism is testament to the newfound resilience of our economy in light of the myriad challenges it's faced over recent years. Whilst major socio-economic issues such as the migrant crisis, questions over our relationship with the EU and matters of national and international security remain unresolved, UK businesses are successfully calibrating to the volatile, uncertain, complex and ambiguous ('VUCA') global business environment.

"As encouraging as the figures are for the UK and wider European Union economies, the 'new normal' means businesses are constantly having to redefine corporate risk and ensure they're agile enough to maximise opportunities whilst mitigating for the unknowns on the horizon."

Global business outlook strong heading into New Year

Grant Thornton’s research reveals that most regions remain resolutely confident at the start of 2016, as fears over the impact of a Chinese slowdown are tempered. In China itself, business optimism increased from 26% to 36% in Q4, and economies like Indonesia (36% to 56%) have followed suit. Even economies like Malaysia (-28% to -14%) and Thailand (-8% to 4%), which have taken bigger hits to confidence as fears over the impact of China’s slowdown grew, have eased. Overall business optimism in APAC has increased from 20% to 31% in Q4.

Optimism in Latin America (11% to 18% in Q4) is also at its highest level in a year, driven largely by a remarkable turnaround in Argentina where the change of leadership has seen optimism rocket to 68% - the highest since 2011. Elsewhere, expectations for increased revenue in 2016 have shot up in Brazil (24% to 49% in Q4), ahead of the Olympic Games being held in Rio de Janeiro.

Robert Hannah continued: "With US businesses reporting the biggest fall in confidence last quarter, and the Federal Reserve's historic decision to raise interest rates at the end of the year, 2016 could present global business with some significant headwinds. That said, a number of opportunities are still presenting themselves worldwide for UK businesses, despite the wobble in some major economies. For instance, the slowdown in China in the latter part of 2015 in many ways signals an economic realignment, as the Chinese economy diversifies from commodities consumption to demanding more knowledge and service-based imports – an excellent opportunity for the UK's expertise. With British businesses anticipating an uptick in exports over the coming year, we can only hope their sights are set on such opportunities."

“The global economy continues to change and evolve, with shifting landscapes in major economies creating new challenges but also new opportunities. Those businesses focused on growth will be best placed to spot these emerging pockets of opportunity, build new trade links, and make the most of the brighter outlook being reported for 2016.”