Latest IBR results find UK export expectations are at a 4 year high but optimism has softened.
- Global optimism softens to net 54% in Q2, following Q1 record high of net 61%
- UK business optimism falls 14pp to net 17%, but still remains above levels seen in Q3 and Q4 of 2017
- UK export expectations at their highest levels since Q2 2014, up to net 31% (+14pp from previous quarter)
LONDON – Worldwide business optimism has softened, following an all-time high, according to global research from Grant Thornton’s International Business Report (IBR). The IBR finds that in Q2 2018, business leaders globally are less optimistic about the coming economic cycle, despite continuing rises in expected revenues. Following the highest level of optimism seen in the UK since the referendum on EU membership, this quarter has seen optimism fall by 14 percentage points (pp), but it remains above levels seen in the second half of last year.
Synonymous with the fall in the UK, EU optimism also fell by 14pp with a notable divergence seen between two of the biggest EU economies, France and Germany. Optimism in France fell sharply from 75% to 38% (-37pp) whilst Germany remained at net 74%. Italy also saw a large fall – down from net 30% to net 14%.
In the UK, the number of business expecting an increase in revenues fell to 48% (-10pp). In addition, regulations as a constraint to business are at their highest levels for over five years (28%) and shortage of finance as a constraint at its highest level since Q3 2013, suggesting UK businesses are bracing themselves for significant headwinds over the coming 12 months. Alongside this, the proportion of UK businesses expecting to offer a pay rise is down 16pp to 70%. However, the number of businesses expecting to export more in the next 12 months is up 14pp, to the highest level since Q2 of 2014.
Robert Hannah, partner at Grant Thornton UK LLP comments: “Since the UK’s vote to leave the EU, businesses have faced considerable uncertainty, but it is encouraging that, despite a fall, optimism levels still remain above those seen for the last half of 2017. The vote to leave the EU was a big shock to the economy in 2016 but there are signs that UK businesses are adapting to a more turbulent trading environment, inflation has slowed and UK households have seen income increase over the past twelve months giving a boost to consumer confidence.
“The focus now needs to be on creating an economic environment that can sustainably support growth for UK businesses and, in a Brexit-dominated landscape, the importance of exporting as a means to open up markets and create these opportunities is more important than ever. The UK has strong export potential but we need to better understand the barriers that are preventing businesses from doing so. It is understandable that UK businesses may be cautious when it comes to entering new markets and finding trading partners abroad. However, with so much untapped export potential, particularly driven by the quality premium of British goods and services, we need to give UK businesses the confidence and enable them to draw on their collective strengths. The latest data from the IBR points to the constraints of regulation, however, it is important that businesses recognise that regulation provides certainty and a strong framework for us to do business with the rest of the world.
“We know that there are many businesses with the potential to shift the UK exports needle and make greater contributions to Britain’s export-driven GDP outputs, it is now a case of creating a business environment that makes this possible.”