With further easing of COVID-19 restrictions, the latest data from the Grant Thornton International Business Report (IBR)* shows mid-market businesses are bouncing back with renewed energy. Economic optimism has reached its highest level (68%) since the end of 2015 with the data showing a huge rebound (+29 percentage point increase) compared with six months ago.
This represents the highest level of economic optimism recorded in the post-Brexit referendum era, with the indicator easily surpassing its pre-COVID level and now in line with the global average. UK mid-market optimism is fuelled by improved revenue and profit expectations, up 19pp and 29pp respectively.
Despite feeling more positive than they have for some time, over two thirds (65%) of UK mid-market leaders still cite economic uncertainty as a key constraint. Though it’s slightly less of a problem than it was six months or a year ago this is above the global average of 61% and well above the long-term average for the UK of 35%. Other growing concerns include regulation and red tape, concern over which is now also at the highest level ever recorded by the IBR.
Dave Munton, Head of Clients and Markets at Grant Thornton UK LLP, said:
“The sharp upwards movement in optimism and growth expectations from business leaders is phenomenal and at a level not experienced in the decade of comparable IBR data. Despite the turbulence and uncertainty that many businesses have had to navigate for almost 16 months, we’re seeing all -time record levels of optimism regarding the strength of the economy, profit and revenue expectations, demonstrating the resilience and adaptability of mid-market leaders who are becoming accustomed to operating in difficult, ever-changing circumstances.
“Prior to the pandemic, optimism levels were performing well, and many sectors of the economy were set for growth. Given the easing of restrictions and the roll out of the vaccines, a renewed confidence that businesses can get back to where they were pre-pandemic is accelerating optimism in the short term. However, as we move into 2022 and beyond, whilst we expect optimism levels to hold strong, we also expect to see some softening as things hopefully settle down. We may also see some of the constraints that businesses are clearly still facing such as the end of the Brexit grace period, growing reporting requirements and the end to government support schemes, start to dampen optimism slightly”
Mid-market expectations at all-time high for employment, international trade and growth investment
Growth is now front of mind for mid-market leaders, with almost half expecting to increase employment levels over the next 12 months (43%), this is the highest level seen for three years and has almost doubled compared to the same period last year (23%).
Investment expectations are also at an all-time high for mid-market businesses. Technology is the number one investment priority (64% - an increase of +20pp in the last 6 months), the highest recorded. Investment expectations for new buildings and research and development are also at their highest recorded levels since records began.
From an international trade perspective, the IBR recorded its highest ever level of businesses expecting to increase export activity over the next 12 months (up 17pp to 43% the highest ever recorded and much higher than the long-term average of 25). Furthermore, over one-third of firms (37%) expect to increase the number of countries they sell to, with firms looking to expand beyond regional trade partners, identifying China, US, Australia and India as the countries with the most opportunity for growth.
Dave Munton comments:
“A couple of areas of investment expectations really stand out as being at the highest levels ever recorded by the IBR, both in the UK and globally. Firstly, international trade expectations. It’s becoming easier now than ever before to reach new markets and new distribution channels, global consumer trends and agile business practices are opening further opportunities. Many mid-market businesses continue to follow their customers into new markets, which then opens possibilities to build from there as they become more established.
“Secondly, the importance of technology has really landed with business leaders during the pandemic, and there’s been a rapid acceleration in the acceptance of the key role that it plays. From enabling collaboration to introducing robotics into supply chains, technology is helping businesses to be more resilient, but also to add value and differentiate. Mid-market leaders recognise that with the incredible pace of change they must invest to remain competitive, and it is clearly something that is front of mind.”
*Launched in 1992, the IBR provides insight into the views and expectations of around 10,000 businesses across 29 economies.