Thursday, February 29, 2024

Midlands’ business profit expectations plummet as low optimism reflects bleak economic outlook

The December round of Grant Thornton’s Business Outlook Tracker, which monitors mid-market business sentiment, shows that profit expectations have plummeted since October, with 1 in 3 (32%) expecting a decrease in profit in the next six months.

Business optimism also continued a downward trend across all indicators, whilst investment expectations also fell across all categories.

Key findings include:

  • Profit expectations have plummeted 20 percentage points (pp) since October to 46% – this is 9pp below the rolling average
  • 1 in 3 (32% expect a decrease in profits)
  • Optimism about economic growth stayed flat since October at 58% – this is 11pp below the rolling average (69%) and just 1pp higher than the lowest recorded level
  • Revenue growth expectations fell 12pp below the rolling average to 58%
  • 18% of respondents were pessimistic about revenue growth – this is the highest level recorded in three years
  • Pessimism levels were also at a record high for funding position (17%)
  • Investment expectations continue to slow down with all expectations down or the same as in October. Technology (down by 8pp), recruitment (down by 6pp) and skills development (down by 5pp) / growing in international markets (down by 5pp) saw the biggest declines since the last round in October

James Brown, practice leader for Grant Thornton UK LLP in the Central and East region, said: “Throughout most of 2023, businesses have remained relatively optimistic about the economy and their ability to weather the many challenges.

“This latest set of business outlook data suggests that businesses are now starting to come face to face with hard realities resulting from a combination of poor economic performance, biting covenants, higher interest rates, relatively high levels of inflation, energy cost increases, political uncertainty, and decreased investment expectations.

“The only way to get the economy onto a high growth, low inflation path which leads to economic prosperity and welfare gains is to invest in areas that improve productivity, close the productivity gap, and enhance skills. Currently there are decreased investment expectations across the board, including in these key areas.

“The government has put some measures in place such as the Apprenticeship Levy, green grants, R&D tax credits – and while businesses should take advantage of these, they currently don’t seem to be sufficient to ward off all the pressures faced.

“Businesses will know that investing in these areas is critical to their long-term competitive success – so the fact that they are cutting back in these areas paints a clear picture of the pressure they are under.

“With all of this in mind, it is understandable that optimism is at an all-time low, as businesses are in the thick of the storm and trying to find a way through. However, over half (58%) of respondents remain optimistic about the economic outlook, suggesting that businesses can still see light at the end of the tunnel.

“The economy is predicted to improve from 2026 onwards, by which point government policies such as childcare and pension reform will hopefully have kicked in and started loosening the labour market.”

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