UK leaders upbeat on economic sentiment and M&A outlook

06 October 2020 Consultancy.uk

New research reveals that optimism in the UK investment environment is holding up well, despite the uncertainties of the pandemic and Brexit. While short-term confidence in the market continued to sink to a net of -70%, long-term economic sentiment among investors has reached a net positive of 58%.

Researchers from CIL Management Consultants polled 230 investment professionals in Britain to measure confidence in the UK economy and investment environment. The annual Investment 360 Index measures investor and business confidence over time, and over the chaotic four years it has run – during which a deadlocked Brexit process, inconclusive elections and a pandemic have all hit the economy – it has provided an interesting snapshot of Britain’s future prosperity.

Last year, as the country seemed to be bracing for a No Deal Brexit, private equity investors and business management teams were understandably apprehensive about what the future held for the UK’s markets. Negative sentiment towards the economic outlook for the UK in the following 18 to 24 months subsequently increased sharply from 49% in 2018 to 67% in 2019. While that trend has certainly continued in 2020, with negative sentiment now at 70%, investors seem to see a silver lining further down the road.

SHORT-TERM UNCERTAINTY

Despite the massive dent the Covid-19 pandemic will leave in the UK’s economy – whenever it actually ends – and the fact that the UK’s Brexit negotiations are once again on the rocks, certain sectors have fared well over the past year, such as technology, keeping some level of short-term positivity afloat. In the long-term meanwhile, a backlog of activity from the last three years seems to be getting underway – as whether it is with a deal or not, investors know definitively that Britain is leaving the EU, and can plan accordingly.

On top of this, according to CIL’s researchers, most investors believe the headwinds the UK is facing are temporary, and that fundamentally the UK will remain an attractive place to work, innovate and invest once they subside. This means that as the country exits its sustained era of political impasse, investors expect a period of stability to follow, in which they can thrive in a way they have not expected for a long time.

LONG-TERM CONFIDENCE

CIL found that 62% of investors were broadly positive, compared to 56% last year. The company’s weighted net view meanwhile also suggests investor sentiment is buoyant in the long-term, to the extent it is now 31% more positive than it was in 2017. At the same time, investors are increasingly seeing the current crisis as an opportunity. Previous incarnations of CIL’s poll found conclusively that they saw the UK as a seller’s market.

A high of 70% said so in 2017 and 2018, but just two years later, only 28% agree with this, while 33% now see Britain as a buyer’s market, suggesting merger and acquisition activity may quickly ramp up in 2021.

Commenting on the findings, Giles Johnson, Managing Partner at CIL, said, “Our survey shows that current challenges have not dampened longer term optimism for investment and M&A. Government support, monetary easing and the financial sector being in better shape than they were in 2008, mean that respondents expect Covid-19 and Brexit to be considerable, but not insurmountable challenges. Maybe our findings are tinged with relief given how eerily quiet April and May were. But they do show the wheels of investment are expected to adapt and to keep turning as they have many times before.”


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