As UK optimism levels plummet, businesses must not talk
the country into a recession warns Grant Thornton
Monday 7 January 2008
As UK optimism levels plummet to a balance of just +14% (down from
+43% in 2007), businesses need to be careful that they do not talk
the country into a recession, warns leading business and financial
adviser Grant Thornton.
The UK's result is the lowest since 2006, when businesses were
particularly concerned about the effects of the London bombings and
a serious house price correction. In addition, they fall
below the US, who experienced an optimism level balance of +22% and
well below the global average of +42% and the EU average of
+35%.
The figures released today form part of Grant Thornton's
International Business Report (IBR), which canvassed 7,800 business
across 34 countries. In the UK it sought the opinions of
CEOs, MDs, Chairmen and senior executives of 600 large and medium
business.
Alysoun Stewart, head of Grant Thornton's Strategic Services
Group, says: "The US is currently experiencing a greater fallout
from the credit crunch than the UK, yet businesses there are more
confident about the year ahead than we are. If the US can be
positive about withstanding the effects of the credit crunch, then
so can we. In fact, US optimism levels have increased by
eight percent over the past year."
"While no one is suggesting that 2008 is going to be a walk in the
park, businesses still need to be cautious that they don't end up
talking the country into a recession," she warns. "We need to
cast aside our negative attitudes and focus on solutions rather
than the problems."
The Philippines, India, Vietnam, Singapore and Hong Kong all appear
to be unaffected by the credit crunch as they all reported an
optimism balance of more than +80% off the back of strong growth
locally.
Reasons for low optimism levels
With the current economic climate in a state of uncertainty, it is
not surprising that the majority (70%) of businesses gave this as
their reason for the negative outlook ahead. Another quarter
(24%) blamed their poor optimism levels on the political situation
and a further 21% identified the Government's monetary policy and
interest rate decisions as the deciding factor for their downbeat
stance. A further 15% still believe that a lack of skilled
workers is still hindering their confidence about the year
ahead.
"Businesses are crying out for a relaxation in monetary policy to
counter the economic slowdown and asking for a stable environment
from which they can operate. With consumer spending falling
and the housing market showing signs of slowing, a lack of
confidence about the prospects for 2008 is understandable,"
continues Stewart.
Economic Indicators
Despite the UK's confidence levels plummeting, expectations for
turnover and selling prices were slightly more optimistic,
reporting a balance of +68% and +42% respectively (up from +64% and
+35% in 2007). Both results were higher than the EU (+65%)
and global (+64%) averages.
In addition, anticipation about increasing employment levels was
positive at +36% (up from +33% in 2007) and investment in plant and
machinery remained static at +38%.
However, on the flip side, expectations for profitability (+54%
down from +57% in 2007) and exports fell (+15% down from +16% in
2007).
"By anticipating an increase in turnover and selling prices,
businesses are sending a clear message that for all the doom and
gloom heaped on the UK economy, pockets of optimism still remain,"
says Stewart.
UK regional results
Businesses in the Midlands expressed the highest levels of
confidence for the year ahead with an optimism balance of +19%,
followed by London & the south (+14%) and the east of England
(+6%). Businesses in the south west, west & Wales
reported a balance of 0%. However, those in the north, north
east and north west fared the worst with an optimism balance of
-1%.
"Given London's reliance on the financial services industry and the
uncertainty over jobs within the City, it is surprising that London
fared so well in the optimism stakes," points out
Stewart.
"However, businesses in the north, north east and north west are
clearly battening down the hatches for a tough year of trading,"
she concludes.