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Businesses become more cautious about their prospects in the year ahead

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With less than 100 days until the General Election, and coupled with an uncertain economic future in the Eurozone, business confidence has started to decline. After all, although unemployment figures continues to fall, and the number of businesses operating with spare capacity continues to reduce, staff turnover and skills shortages reign supreme.

“Certainty is the bedrock of business planning and the number of ‘known unknowns’ on the horizon appear to be rattling UK business confidence,” suggested Scott Barnes, CEO of Grant Thornton.

“The decent UK business growth that has been achieved over the last couple of years has put the UK in one of the strongest positions amongst global economies as we entered the year. Yet some jitters among UK business leaders are inevitable. Moreover employers have been left short-handed and potentially unable to meet what demand exists – an untenable position for any business.”

But despite this fact, several businesses remain optimistic about the UK’s economic outlook.

Michael Izza, CEO of ICAEW, explained that “much of this optimism is being driven by the growth in domestic demand. Consumers are reacting to the unusual period of low interest rates, inflation, oil and commodity prices by spending.”

Due to the dramatic fall in inflation seen in recent months, salary growth is now comfortably above inflation, so employees are now starting to see a prolonged real-terms growth for the first time in several years. However wages themselves aren’t rising and are still well below pre-recession growth levels.

“Yet this shouldn’t detract from the need for the UK to rebalance its economy, grow export markets and reducing the dependence on service industries, particularly financial services,” said Izza. 

“While it is better to have growth based on domestic demand than no growth at all, with a General Election campaign in sight it is imperative that business receives long-term assurances about the UK’s economic direction which is not deflected by short-term campaign promises.”

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