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UK businesses predict increased turnover and strong profits for the year ahead

Thursday 5 July 2007 

Two-thirds (64%) of businesses in the UK are predicting an increase in turnover in the coming year (the strongest result in nearly 10 years and up from 52% in 2006) and a further 57% anticipate higher profits in the next 12 months, up from 43% last year, according to the most recent findings from Grant Thornton's International Business Report* (IBR).

These results suggest a strong and successful year ahead for the medium and large sized businesses which took part in the survey.  However, one third (35%) of businesses anticipate higher selling prices in the next 12 months (up from 26% in 2006 and the highest figure for more than 10 years), pointing to concerns over increasing inflationary pressures within the UK.  

Alysoun Stewart, head of Grant Thornton's Strategic Services Group says: "These results paint a very mixed picture for the UK.  On the one hand, businesses are extremely positive about their turnover and profitability, with results well ahead of the EU average, but on the other hand, exports have decreased and investment in buildings, plants and new machinery is declining."

"While the next six to 12 months should prove to be very buoyant for the UK (and the greater European economy), the rise in selling price expectations is worrying for British businesses," says Stewart.  "The increasing threat of inflation will need to be controlled carefully by a targeted monetary policy, and we therefore would not be surprised if the Bank of England raises interest rates today," she continues.

EU Enlargement

When it came to EU enlargement, the opinions of UK businesses were equally divided as to whether or not the expansion should continue.  45% of companies in the UK are in favour and 44% are against continued enlargement.  
 
Across Europe, as expected, opinions varied significantly, with 89% of those in Poland backing EU enlargement, followed by 80% in Armenia and 77% in Turkey.  At the other end of the scale was Sweden with not one business supporting the expansion, followed by Luxembourg with only 42% supportive.  

The survey also asked respondents what effects they had experienced as a result of the EU enlargement.  The UK fared well, having experienced the least pressure from the enlargement when it came to increased levels of competition in its home market (UK 20% vs Germany 54%) and it also experienced the smallest increase in competition within the EU market (UK 12 % vs 58% Germany).

The biggest effect within the UK has been an increased labour pool, with 46% of businesses saying this was a direct result of the EU enlargement.

"While the labour pool may have increased, our mid-corporate clients are still telling us that skill shortage is the single biggest issue they face, particularly as evidence suggests that many immigrants may be targeting lower skilled jobs in the UK simply to get a foothold in the job market," says Stewart.  "We also know from other research that the proportion of low-skilled people in the UK is three times higher than in the US and almost double the proportion in Germany and Japan."

Support for the Euro

Support for the Euro within the UK grew by 3%, with 38% of British businesses believing it should be adopted - up from 35% in 2006 (which was the lowest on record).

"Given the pound has just reached a 26 year-high in terms of its position against the dollar, it is not surprising that support for the UK joining the Euro still remains a low priority for UK businesses," says Stewart. 

Exports

Worryingly, the survey also revealed that the UK has fallen to the bottom of the European export league tables.  Only 37% of UK businesses export (down from 39% in 2006) in comparison to 63% of Italian companies and 54% of Polish businesses.  

"It is astounding that only one-third of medium and large sized businesses are exporting goods and services abroad," says Stewart.  "From our experience, businesses are often nervous and uncertain about the risks of entering new markets and unsure how best to manage them, but they can not afford to be either shy or complacent and rely solely on the domestic market, particularly if the economy was to experience a downturn."

"Businesses in the UK need to look to Europe, the Americas and Asia in terms of potential export partners.  However, the biggest opportunities will come from the BRIC (Brazil, Russia, India and China) countries which have the fastest growing economies in the world.  UK businesses need to focus on the growth opportunities in these areas and explore ways to enter these markets," concludes Stewart.