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UK business confidence recalibrates following post-election boost...

By CreditMan Wednesday, October 21, 2015

New research from Grant Thornton’s International Business Report (IBR), a survey of 2,500+ business leaders in 36 economies, reveals that UK business confidence dropped slightly in the third quarter of this year to 67% (down 12pp, from 79% in Q2). This follows a post-election bounce in Q2, from 65% to 79%, following the outcome of the General Election.

Despite the quarterly decline, the UK remains one of the survey's most confident economies. Globally, average business confidence dropped to 38% (from 45% in the previous quarter), largely triggered by a slowdown of the Chinese economy, which had a knock-on effect on many of its key trading partners. In China, optimism slipped 20 percentage points to net 26% in Q3 2015, with falls recorded in other economies equally as striking. Many of China’s top trading partners including Germany (down 46pp to 46%), Japan (down 36pp to -28%), Australia (down 15pp to 39%) and the ASEAN nations (down 22pp to 18%) all reported sharp dips in optimism.

Expectations around UK exports dropped slightly in the quarter (to 12%), representing a 7pp drop year-on-year. The proportion of British businesses pointing to regulation and red tape as a major constraint rose by 8pp in the quarter to 26%.

Robert Hannah, chief operating officer at Grant Thornton UK LLP commented: "It's reassuring that UK business confidence remains robust in light of concerns around other international markets. The somewhat surprising outcome of the General Election earlier in the year provided some relief for businesses, in terms of certainty around the UK's political landscape. Now, many business leaders will be eagerly awaiting the Government's details on EU membership reform, which could trigger additional uncertainty over the months to come."

The IBR reveals that business growth prospects in major trading partners have also been hit. The proportion of ASEAN businesses expecting to increase revenues over the next 12 months has fallen 21pp to 31%. And expectations for increasing exports to China – the group's top trade partner – have dropped to 0%.

In Germany, where China accounts for 6.5% of exports, both revenue (down 42pp) and exports (down 7pp) have been hit sharply as orders – particularly of machinery – have slowed this year. Australia, which counts on China for a third of export earnings, has seen export expectations slide further to just 5%, down 9pp from Q2. Japan and Brazil have also seen revenue prospects contract.

Simon Bevan, head of the China Britain Services Group at Grant Thornton UK LLP, added: "Undoubtedly, businesses with an eye on the Chinese market will be watching the situation there closely, as the slowdown in China is a major concern for the global economy at a time of stuttering growth and heightened uncertainty. Nevertheless, China’s economy is still one of the world’s fastest growing and it is rebalancing towards services, technologies, healthcare, the creative industries and value added manufacturing – all of which are traditional strengths of the UK economy. Therefore, having a China strategy remains essential for British businesses with international ambitions and indeed, they may see more growth in China than some of the traditional big exporters to that country.

“I believe that China remains an attractive export market for UK businesses on account of its size, direction and momentum. But overreliance on any single market is dangerous. You need to be continually assessing and exploring new markets if you want to grow your business in uncertain times.”

Source - Grant Thornton