The headlines have been full of grim economic news for a while. From talk of imminent recession and staff shortages to higher interest rates and industrial disputes, there’s been plenty of reasons for worry and alarm, not least among business leaders.
So it’s interesting to note that, according to the S&P Global CIPS Flash UK composite purchasing managers’ index, many businesses are actually cautiously optimistic about the future.
The index shows that despite seeing the sharpest drop in business activity for two years, companies are expecting the situation to improve throughout the coming year.
There are several reasons for this tentative optimism. For example:
Inflows of new business fell for the sixth consecutive month in January 2023. However, the decline was minimal and the smallest seen for five months.
Business leaders feel economic management of the country has improved in recent months, following the turbulence of Liz Truss’s premiership and the chaos triggered by the Mini Budget last autumn.
Inflation fell from 10.5 per cent in December 2022 to 10.1 per cent in January 2023. This is raising hopes that inflation may have peaked and is now gradually returning to more manageable levels.
It must be stressed that inflation remains well above the Bank of England’s target of two per cent, which means the costs and charges faced by businesses are still going up at an uncomfortably high rate.
Nevertheless, this could signal a chink of light in the wider economic situation, particularly as the S&P Global/CIPS data has been reinforced by the latest Lloyds Bank Business Barometer.
This shows that in January 2023, business confidence rose by five points to 22 per cent. This is the second month in succession that confidence has improved, and means it is now at a six-month high. Economic optimism, meanwhile, went up by four points to 47 per cent, with falling inflation again being cited as a factor.
What the experts say
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the UK saw “undeniably a disappointing start to the year”, citing short-term hits such as industrial action, along with longer-term structural issues such as “trade woes linked to Brexit”.
However, he noted there were “some bright spots” in the survey, such as a further cooling of inflationary pressures and improved business expectations.
Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking, added that businesses are “clearly more optimistic about the wider economy”, partly as there are “precursory signs that wage and other cost pressures may be easing”.
Despite this, he conceded that businesses are still operating in a “tough environment”, with higher energy bills in particular remaining a concern throughout the winter.
With Chancellor of the Exchequer Jeremy Hunt due to deliver his second Budget on March 15th, business leaders across all industries will be eagerly waiting to hear what he has to offer them.
At a time when business confidence is picking up, the Chancellor may wish to seize this opportunity to spring a rabbit out of a hat to encourage firms to hire and invest. He may never have a better chance to do so…