Green shoots: Business confidence is on the increase in 2023 in the UK

As 2022 drew to a close the UK economy was looking grim: rising inflation, forecasts that the naton was on the brink of recession, and economists’ predictions of minimal growth, all combined to paint the gloomiest of pictures.

But now the bleakness of winter has yielded to the green shoots of spring, bringing with it signs of revitalised economic growth.

In March, the Office for National Statistics (ONS) revealed that, at the start of the year, GDP growth had exceeded expectations and had risen by 0.3 per cent.

The Office for Budget Responsibility (OBR) subsequently retracted its forecast (made in November) that the UK would enter recession this year and predicted that inflation would be below three per cent by the end of 2023.

In fact, ONS data showed that UK business investment had risen by 4.8 per cent in the fourth quarter of last year, more than 13 per cent higher than the corresponding period in 2021 and unparalleled since the last quarter of 2019, just before the pandemic struck.

Meanwhile, data firm S&P Global reported the UK private sector had returned to growth in February, indicating that the chances of a near-term recession “have fallen considerably”.

Additionally, March’s purchasing managers’ index (PMI) for the services sector – the dominant force in the UK economy, accounting for more than three-quarters of GDP –  showed it had grown at its fastest pace in eight months in February, boosted by stronger business confidence and an improved economic outlook.

“UK service providers moved back into expansion mode in February as fading recession fears and improving business confidence resulted in the strongest rise in new orders since May 2022,” said Tim Moore, economics director at S&P Global Market Intelligence.

In March, the Office for National Statistics (ONS) revealed that, at the start of the year, GDP growth had exceeded expectations and had risen by 0.3 per cent.

The Office for Budget Responsibility (OBR) subsequently retracted its forecast (made in November) that the UK would enter recession this year and predicted that inflation would be below three per cent by the end of 2023.

In fact, ONS data showed that UK business investment had risen by 4.8 per cent in the fourth quarter of last year, more than 13 per cent higher than the corresponding period in 2021 and unparalleled since the last quarter of 2019, just before the pandemic struck.

Meanwhile, data firm S&P Global reported the UK private sector had returned to growth in February, indicating that the chances of a near-term recession “have fallen considerably”.

Additionally, March’s purchasing managers’ index (PMI) for the services sector – the dominant force in the UK economy, accounting for more than three-quarters of GDP –  showed it had grown at its fastest pace in eight months in February, boosted by stronger business confidence and an improved economic outlook.

“UK service providers moved back into expansion mode in February as fading recession fears and improving business confidence resulted in the strongest rise in new orders since May 2022,” said Tim Moore, economics director at S&P Global Market Intelligence.

In fact, further data released by the ONS showed that UK services exports had reached a record high of £397 billion last year, prompting business and trade secretary Kemi Badenoch to comment: “This cements the UK’s position as a global services superpower. 

“To see trade reaching these heights is a firm reminder of the resilience of our strong services economy and shows significant progress in our race to export over a trillion pounds of British goods and services a year by 2030.”

A budget for growth

Growth has become the watchword for government and industry alike. The Spring Budget was unveiled on March 15 by chancellor Jeremy Hunt, who labelled it a charter for “long-term, sustainable, healthy growth”.

Among the measures aimed at achieving this were tax breaks for companies investing in new technology, plant and technology; and the creation of 12 new investment zones across the UK, which would benefit from financial incentives and be funded by £80 million each over the next five years.

Hunt also announced a reduction in red tape for international traders; a £20 billion investment over next two decades in low-carbon energy projects; increased public funding for nuclear energy projects, which will henceforth be classed as environmentally sustainable for investment purposes; streamlined approvals for new medical products and a £900 million investment in a new supercomputer facility.

Additionally, there will be schemes to encourage more over-50s to return to the post-pandemic workplace, and additional grants for childcare to enable more mothers to find work at a time when the number of job vacancies stands at a near-record figure 1.12 million.

“Our plan is working – inflation falling, debt down and a growing economy,” said Hunt. “Britain is on a lasting path to growth with a revolution in childcare support, the biggest ever employment package and the best investment incentives in Europe.”

No additions to the shortage occupation list

The one disappointment for business leaders was that – apart from relaxations for certain construction workers, such as bricklayers and carpenters – there were no additions to the shortage occupation list to make it easier for companies to obtain visas for the overseas talent many so badly need.

But, as Miles Celic, CEO of the financial services trade body TheCityUK says: “The Chancellor’s focus on embracing innovation, boosting business investment, and driving growth across the UK, is promising.

“For the UK to realise its growth ambitions, remain a powerhouse for talent, innovation and investment, and to reaffirm its reputation as a world-leading international financial centre, there must be continued focus on ensuring economic stability and resilience.”

Boosting trade and innovation

Even before the Budget, Prime Minister Rishi Sunak had put economic growth at the top of his political agenda by creating four new government departments in January, aimed at boosting growth through trade and innovation.

He announced the creation of a dedicated Department for Science, Innovation and Technology to “help make sure the UK is the most innovative economy in the world”; a combined Department for Business and Trade to promote investment and free trade; a Department for Energy Security and Net Zero tasked with securing long-term energy supply; and a “re-focused” Department for Culture, Media and Sport to “build on the UK’s position as a global leader in the creative arts”.

Sunak said at the time: “This week we drove serious change from the heart of government by creating four new departments. This was done to deliver on the promises and priorities of the British people, and to go further and faster on our ambition to drive jobs and growth in every part of the UK and ensure we are at the cutting edge of technology and innovation.”

The first major initiative from the new Department for Science, Innovation and Technology came in March when it launched a ten-point plan, backed by more than £370 million in funding, aimed at making the UK a tech ‘super-power’ by 2030.

“Innovation and technology are our future,” said the Secretary for Science, Innovation and Technology Michelle Doneland. “They hold the keys to everything from raising productivity and wages, to transforming healthcare, reducing energy prices and ultimately creating jobs and economic growth in the UK, providing the financial firepower allowing us to spend more on public services.”

Autumn investment summit

Sunak has also announced that the UK’s second Global Investment Summit will take place in October, bringing together more than 200 CEOs of multinational companies and investment corporations to “showcase the UK as a world-leading investment destination”.

The first summit held in October 2021 secured £9.7 billion of new foreign investment in one day, according to Downing Street, creating more than 30,000 new jobs and supporting growth in vital sectors such as wind and hydrogen energy, sustainable homes, and carbon capture and storage.

This year’s summit is intended to showcase emerging UK success stories in life sciences, deep tech, nuclear fusion and small modular reactors (SMRs), and manufacturing.

“The next Global Investment Summit is an opportunity to demonstrate what we can do as a nation, delivering on our ambition to be a world-leading destination for international finance and investment,” said the Prime Minister.

Even the Bank of England has been sounding more upbeat about the economy. As recently as February, the bank was predicting a shallow recession lasting a year or more, mainly because of rising energy prices. But then along came the unexpected PMI data in March showing the economy had returned to growth.

Huw Pill, chief economist at the BoE, told a meeting of the Institute of Directors: “Survey indicators, that have become available since the publication of the (February) forecast, have surprised to the upside, suggesting that the current momentum in economic activity may be slightly stronger than anticipated.”

New levels of optimism

Confidence among business leaders has also been on the increase, according to the latest survey by the Institute of Directors. “Business sentiment is improving from its historic lows, driven primarily by a growing sense that prospects for inflation are improving and the economy is proving more resilient than previously feared,” said Kitty Ussher, the institute’s chief economist.

This was supported by the latest ‘UK Business Outlook’, published by Accenture and S&P Global on the eve of the Budget, which showed confidence had rebounded to its highest level in 12 months. With a net balance of 43 per cent among manufacturing and service sector firms expecting activity to increase over the coming year, the confidence level among UK firms was almost double that of the 23 per cent optimism level recorded among EU businesses.

In all, those gloomy winter days really do seem to have become a thing of the past.

Autumn investment summit

Sunak has also announced that the UK’s second Global Investment Summit will take place in October, bringing together more than 200 CEOs of multinational companies and investment corporations to “showcase the UK as a world-leading investment destination”.

The first summit held in October 2021 secured £9.7 billion of new foreign investment in one day, according to Downing Street, creating more than 30,000 new jobs and supporting growth in vital sectors such as wind and hydrogen energy, sustainable homes, and carbon capture and storage.

This year’s summit is intended to showcase emerging UK success stories in life sciences, deep tech, nuclear fusion and small modular reactors (SMRs), and manufacturing.

“The next Global Investment Summit is an opportunity to demonstrate what we can do as a nation, delivering on our ambition to be a world-leading destination for international finance and investment,” said the Prime Minister.

Even the Bank of England has been sounding more upbeat about the economy. As recently as February, the bank was predicting a shallow recession lasting a year or more, mainly because of rising energy prices. But then along came the unexpected PMI data in March showing the economy had returned to growth.

Huw Pill, chief economist at the BoE, told a meeting of the Institute of Directors: “Survey indicators, that have become available since the publication of the (February) forecast, have surprised to the upside, suggesting that the current momentum in economic activity may be slightly stronger than anticipated.”