Headwinds strengthen as economic outlook darkens once again
During the Spring Statement, the Chancellor warned that businesses should “prepare for the economic environment to worsen, potentially significantly". The consequences of Russia’s invasion of Ukraine and the subsequent sanctions regime, will likely further impact organisations already grappling with the impact of Brexit, ongoing COVID-19 disruption and rising input costs.
Economic growth forecasts have been revised down, with growth in 2022 now set to be around 4%. Meanwhile, inflation expectations continue to rise with the Office of Budget Responsibility now predicting a peak of nearly 9% in Q3 and an average of over 7% for the year.
Good news comes in the form of strong employment figures, with unemployment nearing pre-pandemic levels. There is also additional headroom in the public finances as higher than expected tax receipts and lower departmental spend more than offset increases in debt interest.
The Chancellor has chosen to use some of these additional funds immediately to alleviate the cost-of-living crisis. He has also signalled the government’s intention to provide further support for business later in the year – with a focus on tax cuts across the areas of people, capital and ideas.
The scale of these measures are yet to be determined though businesses will undoubtedly follow the Budget in Autumn with interest, hopeful for any support that might become available.
How are businesses feeling across the UK?
Our Business Outlook Tracker regularly surveys business leaders across the country to understand their expectations and priorities for the future. Here is what our April survey told us.
Optimism over the outlook of the economy is at its lowest level since our survey began in December 2020.
The number of companies feeling pessimistic about their revenue has more than doubled since October 2021.
Less than 60% of business leaders are optimistic about their companies funding position – down 10pp from February.
Number of companies expecting to significantly reduce profits grew over 21% since February.
Optimism falls in face of growing inflationary burden
Pessimism over the UK economy has reached its highest levels for mid-market businesses since our survey began, reflecting the impact of inflation as it reaches its highest level in three decades. Following a particularly disruptive and uncertain few years, this presents yet another challenge for businesses and one that may be felt most keenly.
Our research suggests that the majority of businesses intent to pass costs onto consumers, with 32% saying they have already done this and a further 27% planning to in the future. Profit expectations, though down, have held up strongly compared to other outlook indicators, perhaps reflecting an underlying confidence in consumers ability to shoulder some of the burden.
As the cost of living crisis takes hold, only time will tell whether or not this strategy is sustainable or if new mitigations will need to be found.
Dave Munton, Partner and Head of Markets and Clients
“Businesses are continuing to face a perfect storm of issues with rising costs from all sides putting pressure on many to increase prices as they focus on maintaining profitability and cashflow levels.
It’s important for businesses to act quickly and decisively. So, while it is inevitable that increased prices will be passed on to the consumer, business leaders also need to look at every aspect of their business, particularly their operational efficiency and supply chain resilience, to identify any areas of potential saving.”
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.