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News release

Gloomy economic forecasts fail to discourage mid-market

Despite depressing economic forecasts, mid-market business leaders are surprisingly optimistic about their growth opportunities. According to data from Grant Thornton UK LLP’s latest Business Outlook Tracker*, mid-market optimism has rebounded across all indicators monitored:

  • economic optimism has risen +16percentage points (pp) since October - +10pp higher than the rolling two-year average
  • revenue growth expectations have risen +26pp since October – the highest level recorded since January 2021
  • profit growth expectations are at a two-year high – increasing +22pp since October, and +20pp above the rolling two-year average

The results indicate that businesses are confident they can weather this economic downturn. Optimism regarding their funding position has risen +23pp since October - the highest level recorded since August 2021. Almost two thirds (64%) are also confident that they have sufficient working capital to manage the impact of a recession for six months or more.

Schellion Horn, Economic Consulting Partner, Grant Thornton UK LLP, said:

“It is surprising that the levels of positivity in the mid-market are so at odds with the current forecasts from the Bank of England and the government. Optimism levels have rebounded significantly since October, when the shock and uncertainty resulting from the mini-Budget plummeted mid-market optimism to some of the lowest recorded in our tracker. The certainty provided since seems to have reassured the market.

“Even though we know the economy and operating conditions are not likely to improve any time soon, it is perhaps better to have bad news over uncertainty. Certainty over the future allows businesses to work this into their forecasts and take action to soften the impact. Our research shows that businesses don’t think that their customers will cut spending considerably – with over three quarters expecting to see increased demand over the next six months - which could be driving their bullish profit growth expectations.”

The top concerns for the mid-market heading into 2023 are the rising tax burden and rising interest rates, both of which they feel sufficiently prepared to manage.

Fight for talent forces mid-market to increase salaries

The mid-market continues to struggle to attract and retain talent, with 61% of respondents experiencing unusually high attrition rates. Over half (56%) are also struggling to recruit for open roles.

Employers are pulling out all the stops in a bid to remain competitive. Almost three quarters of respondents (71%) are planning to offer their people a pay rise in line with, or above, inflation, while 82% are also reviewing their employee benefits package to make it more competitive. Almost half (42%) are also planning to invest more in skills development over the next six months.

The research also finds that the mid-market is starting to look for ways to reduce its reliance on people. Three quarters (74%) agree that they are increasing their use of automation and digital.

Schellion Horn added:

“The focus on investing in employee related areas is similar to our July tracker results and is indicative of a tight labour market. Employers are trying to improve efficiency and productivity, while also managing cost levels. This is demonstrated in the high investment seen in both technology and people. It is interesting to note the focus on skills development, which shows a commitment to making staff more efficient as well as a desire to manage retention levels and costs.

“We assumed that a likely recession would lead to a more fluid labour market and we still expect unemployment to increase in 2023 and 2024 to more normal levels. This should start to ease the pressure off salaries and turn the balance of power back towards employers. Anecdotally, we are already starting to see signs of this, with employers asking their people to come into the office more frequently.

“But with the UK in the midst of numerous strikes around pay and working conditions, how far these demands are met could have a knock-on effect for the mid-market and place further salary growth pressures on employers.”

*The Grant Thornton Business Outlook Tracker is a bi-monthly survey of mid-market businesses. Censuswide (on behalf of Grant Thornton UK LLP) surveyed 603 senior decision makers in UK mid-market businesses between 2 – 12 December 2022. The UK mid-market is defined as companies with an annual turnover between £50million - £500million. 

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