New research from Grant Thornton UK LLP’s latest business outlook tracker finds that profit growth expectations in the mid-market have plummeted to an annual low.
Only 33% of 601 mid-sized businesses surveyed in early December expect to see an increase in profits in the next six months, a significant reduction when compared to July (67%). This is a low not seen since March, and is the lowest level recorded by the Tracker this year.
The latest survey finds that mid-sized businesses are less confident in their future performance than they were earlier in the year:
- 17 percentage point (pp) drop in optimism around future revenue growth compared with July where it reached an annual high, in line with ‘freedom day’
- Only 64% are confident in their company’s funding position, falling -10pp compared to the last Tracker in October and reaching the lowest level since March.
Despite positive forecasts for the UK economy from the OBR, the latest Business Outlook Tracker finds that the mid-market’s confidence in the economy has continued to decline since July (65%, December compared to 79%, July). The bi-monthly research also recorded a significant drop across the whole year, with the number of businesses confident in the economy falling -15pp compared to January (high of 80%).
Investment expectations in the mid-market also seem to have stalled. Intentions around technology are found to have dropped most significantly, declining -22pp in December compared to July where it reached its peak, and -20pp when compared to the start of the year.
Skills development and recruitment had the next biggest decreases in investment expectations in the mid-market, with a -16pp and -13pp decline respectively, compared to January.
Dave Munton, head of UK markets and clients, Grant Thornton UK LLP said: “2021 has been a year of highs and lows for many businesses. Our Tracker shows that the mid-market started the year full of optimism, likely guided by the promise of a vaccine rollout and the Bank of England predicting strong economic recovery from the pandemic.
“However, this optimism started to wane as the third national lockdown went on for longer than expected and the roadmap to recovery published in February outlined the length of time to the ending of restrictions. And while spirits rejuvenated in the summer with ‘freedom day’ in July, since then, optimism in the mid-market has steadily declined, with many optimism indicators reaching their lowest point since March this month.
He added: “Businesses are having to navigate a myriad of challenges from access to skills and adapting to hybrid working, to supply chain challenges and rising inflation – all of which look set to continue into 2022. On top of this, uncertainty over the new Omicron variant is likely to be hampering confidence, with profit expectations for the next six months plummeting to levels not seen since the end of the last lockdown in March. The fear of returning restrictions and continued remote working is likely to be forcing businesses to re-think their plans and expectations.
“The mid-market will need to rely on the resilience it’s developed over the last 21 months or so and continue to adapt to the changing external environment. Change is an element that the market needs to get comfortable with and it has demonstrated good resilience so far. Going into the new year businesses need to ensure that they maintain good communication with all stakeholders, from suppliers to employees, and focus on moving forward with confidence, ensuring a level of flexibility in their plans to allow them to respond quickly to market changes as needed.”