· UK headline index rebounds to +43% in February, from record low of +18% in October 2022
· Profit forecasts turn positive for the first time in a year
· Employment outlook strengthens, but capex and R&D plans continue to lag
· UK business confidence notably higher than both European and global average
UK business confidence rebounded in February to its highest level in 12 months, according to the latest Accenture / S&P Global UK Business Outlook, as expectations towards future activity picked up sharply from a record low in October.
At +43%, the net balance of manufacturing and service sector firms expecting activity to increase over the next 12 months was the strongest recorded in a year, and marked a significant uptick from the +18% registered in October 2022.
UK companies were more confident than almost all of their European peers, with levels of optimism nearly double the average seen in the eurozone (+23%). Notably, business confidence on a global scale was also at its highest for a year (+32%), but remained lower than the UK average.
The boost to UK business expectations reflected growing confidence in nearly all of the 14 sectors covered by the survey, as firms predict a pick-up in customer demand and the easing of inflationary pressures. Hospitality firms registered positive sentiment for the first time in a year (+22%), with hopes that tighter budgets will lead households to spend on domestic "staycations" rather than holidays abroad.
Fewer UK firms predict an increase in their output prices, with the net balance falling to the lowest since June 2021 (+50%), though levels remain historically high. Businesses widely hoped that input cost inflation would not be as severe as last year, however wage inflation remains a key concern with salary pressures expected to persist at above average levels (+21%).
Despite this, the easing of price pressures and the improved demand outlook mean companies are hopeful of boosting profits over the next 12 months. The net balance of firms expecting a rise in profit levels turned positive for the first time in a year (+16%), with manufacturers proving more optimistic than services companies.
Jobs forecasts strengthen, but investment plans lag
With business activity and profit forecasts improving, UK businesses signalled greater optimism towards hiring in February. The net balance of firms predicting a rise in employment more than doubled to +26%, after hitting a two-year low of +11% last October. Firms suggested that labour shortages will continue to pose an issue, although the proportion of businesses confident of finding skilled staff jumped from 34% to 44% in February.
Predictions for capital expenditure and research & development plans were less encouraging. The net balance of firms expecting an increase in capex spending stood at +5%, although this had risen from -7% in October. At the same time, firms expect R&D spending to continue to fall (-3%), suggesting that tight budgets could threaten opportunities for growth.