UK business confidence falls sharply, but remains highest in Europe
UK business confidence fell to a joint record low in June, but remains the most confident in Europe, and above the global trend, according to the latest Accenture / S&P UK Business Outlook.
Whilst the findings come amid global economic uncertainty, a net balance of 28% more private sector firms forecast their activity to increase over the coming year. This is half the level recorded in February (+56%), and the joint-lowest since the survey began in October 2009. Both the EU and global averages are below the UK at +16% and +22% respectively.
UK businesses also expect rapidly rising inflation, fuelled by increased energy costs, to drive down margins, as profit forecasts turned negative for the first time in the survey's history, at -2%.
The data reveals that companies are concerned that they will be unable to pass on higher costs to customers, with +59% of firms predicting an increase in their output charges - the second highest-on record, following a survey record of +62% in February.
Cost expectations remain high despite 3% fewer companies predicting a rise in staff wages, down from +83% to +80%. Manufacturers are relieved to see a decrease in supply chain challenges, reporting their lowest expectations for non-staff costs in 12 months.
Optimism is strongest among makers of electrical and transport goods (+63%), as firms praised new product opportunities, sustainable investment, and lower metal prices. At the other extreme, hospitality firms posted a negative outlook for the first time in nearly four years (-4%), as the cost-of-living crisis drives lower consumer spending on travel, dining and leisure.
At the same time, +21% of UK employers predict a rise in employment - almost double the rest of Europe at +12% - as firms look to fill staffing gaps that appeared during the COVID-19 pandemic.
Commenting on the survey, Matt Prebble, Strategy & Consulting Lead, UK & Ireland at Accenture, said: “Inflation and a cloud of economic uncertainty have understandably knocked business confidence. Whilst some predict lower profits and are cutting back on research and development, it is worth noting that the more confident sectors are continuing to sustainably invest in new products."
Over the past few years UK business leaders have proven resilient in the face of constant change which may explain their optimism compared to other countries. It is this mindset to make transformational change where it is needed most, invest in talent and new technologies that will put them in a strong position to take market share when the current turbulence passes."
Half of UK regions expect profits to fall, but West Midlands and Yorkshire are on the rise
There remains a sharp regional divide in business confidence in June, as half of the 12 UK regions expect to see a decline in profits. Businesses in the South East continue to feel the most secure and expect to see the sharpest rise in employment over the next 12 months (+34%). However, optimism in other English regions is on the rise - the West Midlands (+39%) and Yorkshire & the Humber (+29%) moved to become the second and third-most-optimistic regions for activity, ahead of London (+30%).
Not all regions are feeling the same buoyancy, with notably pessimistic profit expectations for the North East (-16%), South West (-17%), and in particular Northern Ireland (-35%).
The latest data also suggested that wage pressures will be primarily driven by regions in the South of England over the next year, with the South East, South West, East of England (each +82%) and London (81%) posting well above other parts of the UK.
