GGF Business Survey: The economy isn’t all doom and gloom
Business confidence in growth and profits is resolutely strong, according to a new GGF poll of more than 1,000 UK firms of all sizes and regions, across 15 key sectors. Two-thirds of UK businesses are optimistic about their ability to expand. In contrast to recent signals, firms report rising revenues, demand and profitability. 61% of firms say their revenues will increase in the next quarter, while 53% expect a boost to profits in the three months to May.
Businesses report broad support for the Government’s economic plans - with plans for transport infrastructure and the industrial strategy ranked as the most popular elements. This sentiment was strongest with large firms; SMEs were supportive of the proposals but small and micro businesses were less likely to think they personally would reap the benefits.
The poll also found that one third of businesses are concerned about workforce health, as 78% firms say it is key for the Government to address this issue. Trade barriers with the EU are also a major obstacle, with one in three businesses urging the government to focus on improving European relations.
Almost two thirds of businesses are confident that their revenues and profits will grow: 65% responded saying they were confident about their business’s ability to grow, just 12% were not.
Revenues are on the rise. 48% saw their revenues increase in the last 3 months; 21% saw it fall. 61% think it will increase in the next quarter.
Profits are anticipated to grow. 53% believe that profitability will improve in the next 3 mo months; 21% think it will fall.
Demand is strong. 46% businesses saw demand for their product/service rise; 23% saw it fall.
But the doom and gloom is clouding their views on the economy overall. Businesses are bullish on the prospects of their own growth, but this is disconnected from their negative views of the national economy.
Firms back the Chancellor’s plans, but small firms feel left out
Firms think the Chancellor’s announcements will support the business environment.
The most popular among businesses were transport infrastructure like inter-city rail (62%), regional rail improvements (58-60%), industrial strategy to support business growth like investment zones (60%), R&D, green industry, life sciences (58%), and housing near transport links (57%) and urban regeneration (59%).
Headline measures like the third runway at Heathrow and the Oxford-Cambridge Arc were also viewed positively by firms - with 47% and 55% respectively supporting these measures.
Road construction was least popular for growth. Road-building like the Lower Thames Crossing, A303 under Stonehenge performed slightly less well (47%).
But there must be more engagement with smaller businesses.
Few smaller businesses think that they will directly benefit from a third runway at Heathrow. Just 27% overall think a third runway will be beneficial for their business. But businesses with more than 10 employees are much more likely to be supportive.
Of businesses with 10-19 employees, 57% think it will support their business. For those with 20-49 employees it’s 65% supportive and , and for businesses with 50-99 employees it’s 74% support.
Again, rail improvements and industrial strategy were more likely to benefit businesses directly. Rail improvements and industrial strategy were ahead of road building support (38-41% compared to 32%).
The growth Achilles’ heel: suffocating costs
To support further growth, the Government needs to drive down costs and provide investment.
Businesses want lower taxes, grant funding and cheap finance from the Government. 43% want the Government to help them grow by lowering business taxes, 33% want access to grants, and 20% want cheap loans and deregulation.
Of those that wanted deregulation to help them grow, 67% cited that regulations created unnecessary costs and barriers, with 20% reporting that regulations currently favour larger competitors.
The bottlenecks to growth are high energy costs, a lack of tax incentives and skills.
Companies want the Government to bring down bills. Bringing down energy costs was the most popular option for the Government to prioritise with 50% approval.
66% of businesses have seen costs rise in the last quarter, and 67% think they will rise again in the next.
High operating costs and energy costs were the biggest constraints to growth (25% and 20% respectively), while 37% said cutting costs or improving efficiency is one of the top 3 things that would enable them to grow in the next year.
More tax incentives to support growth should be on the agenda. Tax incentives for business investment came second, with 40% approval, and this was most popular among smaller businesses at 41-43%.
Businesses think skills and training need more Government attention. Skills and training was also the third most popular measure for the Government to address, with 35% support. This received strongest support from larger employers 50-99 with 46% approval.
This had a lot of variation by sector, with Retail, Property, and Agriculture/Fishing just 15-19% citing this as a priority, compared to Construction, Motor Trades, and Health at 50-56%.
Physical infrastructure and access to finance are less of a concern. Physical infrastructure and access to finance came joint fourth at 26%, with infrastructure more popular with business of between 20-99 staff (31-40%).
The three pillars for growth: economic performance, stability and business sentiment
The Government must be bullish on economic growth: firms feel the doom and gloom in their pockets.
Uncertainty is restraining business growth. The biggest reported constraint to business growth was uncertainty (29%).
Negative market sentiment is hurting business growth. Weak customer demand was a constraint for 23% of businesses, and 21% reported elsewhere that low consumer confidence might stop business growth in the next year.
Customer demand had mixed reporting, with it more frequently cited as a factor in the Professional, scientific and technical sectors (41%), Transport and Storage (42%), and Arts and entertainment (34%).
56% cited that a stronger UK economy would enable their businesses to grow in the next year, with 19% later reporting that poor overall UK economic performance was a constraint to growth.
To support investment and long-term growth, reducing skills shortages is essential. Nearly 40% are concerned that skills shortages will restrict their business growth in the next five years.
There is equal weighting for measures to improve skills and training. The most popular measures to meet skill needs were better technical education in schools and universities (30%), in work training and development (30%), more relevant apprenticeships (29%), and retraining for new technologies (26%).
Very small businesses are less concerned about skills shortages. But this appears to be of less importance to businesses that employ less than 5 people, with 34% of which selected none of the above.
Businesses want action on improving workforce absence, retention and recruitment.
A third of businesses are concerned about workforce health. When asked on issues of employee retention (32%), employee absence (35%), and hiring challenges (29%), a third of businesses expressed extreme or moderate concern about deteriorating workforce health.
Companies want the Government to address this. 78% of businesses recognise that it’s important for the Government to address this.
Barriers to trade with the EU are restraining business growth
Trade barriers with Europe are the most significant obstacles to international markets.
Removing trade barriers with Europe should be the focus for opening new markets. Of the 5% of businesses that cited that trade barriers were holding back business growth, trade with the EU (52%) and other European countries (12%) were the markets that were most important to gain access.
Barriers to trading with the EU must most frequently a problem for the following sectors: Construction (90%), Hospitality (80%), Business Admin and Support Services (72%), Retail (57%)
Overall, 38% of businesses do at least some of their work outside of UK markets.
Communications, Entertainment , Production and Services are trading overseas. This was most likely to be Information and Communication (66%), Arts and Entertainment (63%), Production (53%). Of the Professional and Scientific, Business Administration, and Finance and Insurance sectors (46-48%) have some focus in international markets
Agriculture and Construction sectors are inwardly focused. Of sectors that were entirely domestically focused were Agriculture, Forestry and Fishing (86%), and Construction (82%), and Health sectors (77%).
One in three businesses want the Government to focus on relations with Europe to help grow their businesses.
Focus on Europe to support business growth. To help support the growth of their business, 31% of respondents want the Government to focus more on Europe, and 22% want equal attention with the US and EU.
But a significant portion of businesses don’t want alienation from the US. A further 19% of businesses want more focus on the US, including 45% of Finance and Insurance companies
AI and efficiency drive productivity, but adoption is uneven
Making business efficiencies and AI adoption is driving productivity practices.
More efficient business process and AI adoption supporting productivity growth. 26% cited that making business processes more efficient would boost productivity, followed by adopting AI technologies at 21%.
Investment into marketing, new equipment and AI leading future expansion. To support growth in the year ahead, businesses are expanding with more marketing and advertising (35%), new equipment and technologies (29%), AI (24%).
But AI adoption overall is a mixed picture. 45% of businesses have either fully incorporated AI or are taking it onboard currently, and 76% believe adoption requires some level of training.
Of the sectors that are intending or currently implementing AI, the leaders were Motor Trades (84%), Information & Communication (69%), Finance (67%), and Production (63%).
However, 40% were not considering implementing AI into their operations. This was most cited by businesses of 1-4 employees (45%), and sectors like Agriculture and Fishing (62%), and Hospitality (67%). Just 37% of Professional, scientific & technical businesses are implementing AI.
“Firms are facing acute difficulties due to employee absence, retention and hiring difficulties. The message from UK plc is clear: the Government must address workforce health to improve business stability and growth prospects. With over three million people on universal credit with no requirement to work and 1.6 million receiving the benefit with a work requirement, it is more important than ever for the Government to tackle this issue head on.”
Methodology
This was a nationally representative survey of 1,121 businesses across Great Britain during 7-10 February, accurately representing business sizes, the proportions of each sector, and the geographical spread of companies across Great Britain.
The respondents were senior business decision-makers, including owners, directors, and C-suite executives, who are well-placed to provide informed perspectives on business performance and growth.
The sectoral breakdown is as follows, aligned with ONS data:
Agriculture, forestry & fishing: 4.6%
Production: 5.4%
Construction: 13.9%
Motor trades: 3%
Wholesale: 3.7%
Retail: 8%
Transport & storage (incl. postal): 4.4%
Accommodation & food services: 6.5%
Information & communication: 7%
Finance & insurance: 2.3%
Property: 4.5%
Professional, scientific & technical: 15.7%
Business administration & support services: 8.4%
Health: 4.2%
Arts, entertainment, recreation & other services: 6.4%
