Rising costs temper optimism of mid-market businesses
Mid-market businesses have seen their expectations for the economy fall, amid concerns for rising costs. The outlook on the economy declined by 5% among businesses polled by Grant Thornton.
Every two months, Grant Thornton surveys 600 business leaders across the UK to understand their expectations and priorities for the future. Using this data to track changing market sentiment over time, the firm publishing a regular report exploring topical issues and challenges facing businesses in the country’s mid-market.
According to the December results of the rolling survey, sentiment has dipped compared to the record highs noted in September’s findings, with the outlook for the economy falling by -5% – a return to its July levels – while revenue growth expectations dipped by -3%.
Sarah Bell, Partner and Head of Industries at Grant Thornton UK, said, “For many mid-sized businesses, ‘Happy New Year’ may feel more like hope than certainty. A record tax burden and shaky consumer confidence set a tough backdrop for the coming year, which the survey findings reflect. However, since we started collecting optimism data in 2021, the mid-market has proven to be a positive-minded and resilient group, with a confidence that often contradicts broader economic sentiment. This remains the case, as optimism on all indicators this year has remained above the rolling average.”
In September, a majority of respondents had already adopted a gloomy outlook on their own profitability – something unusual in such polls. Usually, firms have a more optimistic view of their own outlook than the broader economy, but even in a moment of growing economic optimism back in September, a majority of 52% said they expected profits to shrink in the coming period, while 42% said they expected growth.
Since then, announcements from November’s budget seem to have further reduced wider optimism too, with 100% of respondents telling Grant Thornton they expected day-to-day costs operating costs to rise because of policy changes. Over a quarter anticipated significant cost increases of more than 15%, while 63% bemoaned forecast cost hikes of between 5 to 15%. Among the most significant factors was the reform of business rates at 44%, while 42% also begrudged rising minimum wage thresholds to help staff cope with the rising cost of living.
Looking ahead, however, Grant Thornton found that a more proactive stance on employee compensation and development might help improve firms’ fortunes.
Bell added to that end, “Crucially, leaders see improvements where it matters most: investing in technology and developing talent. Those who invest strategically in these areas could turn challenge into competitive advantage.”
