BUSINESS IN BRITAIN A survey of business opinion and trends. 46th Edition July 2015

Transcription

1 BUSINESS IN BRITAIN A survey of business opinion and trends 46th Edition July 15

2 OUR CONTRIBUTORS CONTENTS Hann-Ju Ho Economic Research Financial Markets Lloyds Bank Commercial Banking Tel: (0) INTRODUCTION RECENT TRENDS IN THE SME MARKET THE SECTORAL PICTURE THE REGIONAL PICTURE ANALYSIS BY SIZE OF FIRM Jonathan Thomas Economic Research Financial Markets Lloyds Bank Commercial Banking Tel: (0) jonathan.thomas2@lloydsbanking.com 2

3 INTRODUCTION Tim Hinton Managing Director Mid Markets & SME Banking Lloyds Bank Commercial Banking Tel: (0) Welcome to the latest results from our twice-yearly Business in Britain survey, now in its twenty-third year. The survey offers valuable and timely insights into the recent performance and expectations of small and medium sized businesses up and down Britain and across all sectors of the economy. Companies in our survey reported robust levels of economic activity in the past six months and this is anticipated to continue in the second half of the year. Overall business confidence remains near the post-recession high a finding which is broadly replicated across industries, regions and firms of different sizes. Taken together, these results suggest that the economic upturn is enduring and maturing. Our survey also shows a further rise in the share of companies reporting recruitment difficulties, suggesting that slack in the labour market is closing. A notable change compared with the last survey is the improvement in expected exports, particularly to Europe. Combined with positive investment spending trends, this should help the rebalancing of the UK economy. I would like to thank all of the 1,0 companies that have taken the time to participate in the survey, helping to provide valuable insights on the UK economy. I wish you every success for the remainder of 15 and beyond. 3

4 RECENT TRENDS IN THE SME MARKET SALES, INCOMING ORDERS AND EXPORTS REMAIN NEAR POST-RECESSION HIGHS SALES, ORDERS AND EXPORT SALES OVER THE LAST SIX MONTHS Sales and orders: orders Sales 2 1 Export sales: Europe overall sales in the past six months fell slightly by three points to 35%, but remains at a strong level. Just over half of companies (51%, down from 54%) indicated that sales had risen in the first half of the year, while 16% (unchanged) said that their turnover had fallen. 2. incoming new orders over the past six months was unchanged at 37%, which is near post-recession highs. Nearly half (48%, down from 49%) of firms indicated that demand had risen, while 11% (down from 12%) said that it had fallen. 1. total exports over the past six months edged lower to % from 33% in the previous survey. Forty-four percent (down from 47%) of exporters reported stronger sales abroad, while 14% (unchanged) said export sales fell. 2. exports to Europe, however, rose by 7 points to 18%, with 36% (up from 31%) of exporting firms reporting strong European sales and 18% (down from %) indicating weaker sales. 35% overall sales in the past six months fell slightly from 38% to 35%. 37% incoming orders was unchanged at 37%. % total exports in the past six months fell slightly to %, from 33% in the last survey. 18% exports to Europe, however, increased to 18% from 11%. 4

5 OPTIMISM ABOUT EXPECTED SALES AND ORDERS HAS REMAINED STEADY SALES AND ORDERS OVER THE NEXT SIX MONTHS expected sales over the next six months edged up one point to 47%, with 55% of companies (down from 56%) anticipating stronger sales and 8% (down from %) expecting weaker sales. expected orders in the next six months fell by one point to 45%, with 52% of firms (down from 54%) expecting stronger demand and 7% (down from 8%) expecting weaker orders. % respondents 70 % respondents 70 58% 46% 47% 56% 46% 45% M AGO 6M AGO LATEST - 12M AGO 6M AGO LATEST Expected Sales: Down Expected Sales: Up Net Balance (Up Down) Expected Orders: Down Expected Orders: Up Net Balance (Up Down) 47% expected total sales over the next six months rose by one point to 47%. 45% expected business orders over the next six months fell by one point to 45%. 5

6 EXPORT PROSPECTS EXPECTED TO STRENGTHEN OVER THE NEXT SIX MONTHS EXPORT SALES OVER THE NEXT SIX MONTHS overall anticipated global exports over the next six months increased by five points to 46%, reflecting a rise in the share of exporters reporting stronger shipments abroad to 54% from 51% and a fall in the percentage anticipating weaker sales to 8% from %. The corresponding net balance for exports to Europe in the next six months also increased by eight points to %, with 43% (up from 36%) reporting higher European sales and 13% (down from 14%) expecting lower shipments. % respondents % respondents 70 51% 41% 46% 37% 22% % M AGO 6M AGO LATEST Expected Exports: Down Expected Exports: Up Net Balance (Up Down) M AGO 6M AGO LATEST Expected Exports to Expected Exports to Net Balance (Up Down) Europe: Down Europe: Up 46% The net balance of anticipated global exports rose from 41% to 46%. % The net balance of firms expecting higher exports to Europe rose by eight points to %. 6

7 HIRING AND INVESTMENT INTENTIONS REMAIN RELATIVELY STRONG INVESTMENT AND EMPLOYMENT TRENDS RECRUITMENT FRICTIONS AND CAPACITY TRENDS Future expectations: 0 Investment Employment % firms Recruitment difficulties (skilled) (LHS) full capacity (RHS) % firms The net balance of companies planning to increase their staffing levels in the next six months fell marginally by 1 point to 19%. Thirtyone percent (up from %) of firms expect to raise their headcount, while 12% (up from %) anticipate a fall. The net balance is consistent with further rises in employment in the UK economy in the second half of the year. 19% staffing levels over the next six months edged lower by 1 point to 19%. 2. planned capital expenditure for the next six months improved, rising from 16% to 18%. Just under a third (%) of companies unchanged from the last survey expect to increase investment spending, while 12% (down from 14%) anticipate a reduction. The net balance remains consistent with a recovery in investment spending in the wider economy. 18% planned capital spending increased from 16% to 18% The percentage of companies reporting difficulties in recruiting skilled workers in the past six months increased from 39% to 41%. This is the highest level for seven years, and suggests that the slack in the labour market is closing. 41% The share of businesses reporting difficulties in recruiting skilled workers in the past six months increased from 39% to 41%. 2. The share of businesses reporting that they are operating at full capacity rose to an all-time high of 47%, up from 46% in the previous survey. This may lead to an increase in underlying price pressures in the coming months. 47% The share of businesses reporting that they are operating at full capacity rose from 46% to 47%.

8 TRENDS IN PROFITS AND PRICES ARE STEADY PRICES AND PROFITS: OVER THE NEXT SIX MONTHS Future expectations: Prices Profits The net balance of companies expecting to raise their prices in the next six months was unchanged at 22%. Thirty percent of firms anticipate a rise in their prices, while 8% predict a decline both unchanged from the previous survey. 22% The net balance of firms that anticipate raising their prices over the next six months was unchanged at 22%. 2. Nearly half of companies (47%, down from 49%) expect to see an improvement in their profits in the coming half year, while 11% (down from 13%) anticipate a fall. The resulting net balance of 36% is unchanged from the last survey. 36% expected profits over the next six months held steady at 36%. INTEREST RATE EXPECTATIONS interest rate expectations for the coming six months fell from 39% to %. Thirty-four percent of companies (down from 42%) anticipate higher interest rates, while 4% (up from 3%) foresee lower interest rates. % respondents - % 35% 39% % 12M AGO 6M AGO LATEST Expected Interest Rates: Down interest rates in the next six months fell from 39% to %. Expected Interest Rates: Up Net Balance (Up Down) 8

9 OVERALL BUSINESS CONFIDENCE REMAINS NEAR POST-RECESSION HIGHS BUSINESS CONFIDENCE Our measure of overall business confidence is an average of the net balances for expected sales, orders and profits over the next six months. This measure held steady at 43%, lower than the peak of 53% a year ago, but nevertheless it is still consistent with a robust expansion of activity. index THE ECONOMIC DYNAMIC REMAINS POSITIVE, BUT RECRUITMENT DIFFICULTIES ARE RISING Companies in our survey continue to report robust levels of economic activity anticipated for the next six months. Although overall business confidence has eased a little compared with the peak a year ago, it remains near the postrecession high. Expected export sales have improved compared with the last survey six months ago, helped by better economic prospects in Europe. Profit, investment and hiring trends also remain positive. However, the share of companies reporting recruitment difficulties continues to rise and suggests that spare capacity in the labour market is closing. Average % The average of the net balances of expected sales, orders and profits was unchanged at 43%. 9

10 THE SECTORAL PICTURE CONSTRUCTION AND MANUFACTURING ORDERS RECOVER SALES OVER THE LAST SIX MONTHS ORDERS IN THE NEXT SIX MONTHS Manufacturing Construction Retail & Wholesale Hospitality & Leisure Transport & Communications Business & Other Services Manufacturing Construction Retail & Wholesale Hospitality & Leisure Transport & Communications Business & Other Services The decline in the overall net balance for sales over the past six months was not replicated across all sectors. While retail & wholesale (down 4 percentage points to 31%), transport & communications (down 5 points to 34%) and business & other services (down 7 points to 34%) all fell back, hospitality and leisure held firm at 43% while the manufacturing and construction sectors saw rises of 4 points to 38%, and 14 points to %, respectively. For manufacturing, this was the strongest reading since June 07 while construction sales were at an all-time high. The pattern of sentiment changes surrounding sales over the last six months is also evident in expectations about incoming orders for the remainder of the year. In particular, retail & wholesale, transport & communications and business & other services all foresee some softening, while manufacturing and construction, along with hospitality & leisure, anticipate improvements. The construction sector recorded the sharpest increase, rising 8 points to 56%, after a 22-point drop in the previous survey. Manufacturing also saw a partial retracement. After slipping by points in the January survey, the net balance rose by 5 points to 57%.

11 CAPITAL SPENDING INTENTIONS IN CONSTRUCTION RISE SHARPLY PROFITS IN THE NEXT SIX MONTHS CAPITAL SPENDING IN THE NEXT SIX MONTHS Manufacturing Construction Retail & Wholesale Hospitality & Leisure Transport & Communications Business & Other Services 0 Manufacturing Construction Retail & Wholesale Hospitality & Leisure Transport & Communications Business & Other Services The net balance of firms that expect profits to rise in the next six months increased across all sectors, with the exception of transport & communications and business & other services where the indices fell by 9 and 4 points, to 32% and 34%, respectively. In both cases, this was the second consecutive survey of decline and chimes with the anticipated easing in new business. Current sentiment is strongest in construction (up 7 points to 42%), retail & wholesale (up 5 points to 41%) and manufacturing (up 7 points to %). With the exception of retail & wholesale and transport & communications, all sectors reported a rise in the net balance of firms anticipating an increase in their capital outlays over the next six months. After a 24-point drop to 6% in the last survey, construction rebounded strongly with an 18-point gain to 24%. Hospitality and leisure was the only other sector to record a double-digit improvement with a score of %, which is the highest reading since mid-1998, compared to 15% in the previous survey. 11

12 EMPLOYMENT INTENTIONS HAVE SOFTENED ACROSS MOST OF THE SERVICE SECTOR EMPLOYMENT IN THE NEXT SIX MONTHS BUSINESS CONFIDENCE OVER THE NEXT SIX MONTHS Manufacturing Construction Retail & Wholesale Hospitality & Leisure Transport & Communications Business & Other Services Manufacturing Construction Retail & Wholesale Hospitality & Leisure Transport & Communications Business & Other Services The net balance of survey participants seeking to increase headcount over the next six months rose in manufacturing, construction and hospitality and leisure, but declined elsewhere. The sharpest fall took place in transport & communications, down from 24% to 15%, followed by retail & wholesale, down from 15% to 9%. The January 15 survey saw the net balance for overall business confidence fall back from a record high of 53% to 43% as well as declines across all the sectors. While the aggregate balance has remained unchanged this time around, manufacturing, construction and hospitality & leisure have all seen an improvement in the average of expected orders, profits and sales. More generally, all the sectoral outturns remain consistent with a solid pace of activity over the coming six months. 12

13 THE REGIONAL PICTURE SENTIMENT ABOUT EXPECTED ORDERS AND SALES FALL SHARPLY IN WALES ORDERS IN THE NEXT SIX MONTHS SALES IN THE NEXT SIX MONTHS 70 North East E Midlands & East North West Wales London South East South West Glos, Oxon & S Midlands W Midlands Scotland Yorkshire North East E Midlands & East South West London W Midlands Glos, Oxon & S Midlands North West Yorkshire Scotland South East Wales The January 15 survey saw the net balance for expected orders fall across the whole of the UK. The sharpest decline was in the North East and four other regions including the South East and South West also recorded doubledigit falls. The current survey paints a more varied picture with rebounds in the North East (up 17 points to 41%), East Midlands & the East (up 7 points to %) and South East (up 7 points to 54%). Sentiment slipped elsewhere, especially in Wales which saw 16-point retreat to %. At 54%, sentiment was highest in the South East and Yorkshire & the Humber. The net balance of firms that anticipate an increase in sales over the next six months increased in four regions, namely the East Midlands & East (52%), South West (56%), Yorkshire & the Humber (51%), and the South East (59%). They also had the highest scores. The North East continued to have the lowest balance at 29%, which was unchanged from the previous survey. Once again, Wales recorded the sharpest decline in sentiment with an 18-point fall to 36%, followed by the North West which was down 7 points to %. 13

14 OVERALL BUSINESS CONFIDENCE REMAINS STRONG IN MOST REGIONS EMPLOYMENT IN THE NEXT SIX MONTHS BUSINESS CONFIDENCE Glos, Oxon & S Midlands North East Yorkshire E Midlands & East South East South West North West London W Midlands Scotland Wales 0 North East Glos, Oxon & S Midlands E Midlands & East North West London W Midlands South West South East Wales Yorkshire Scotland The net balance of businesses that anticipate an increase in headcount over the next six months rose in the South East, South West, East Midlands & the East and Yorkshire & the Humber but fell elsewhere with the exception of the West Midlands where it was unchanged. The pattern of sliding Welsh sentiment about prospects for sales and new business appears to have fed through to employment. Wales saw the largest net balance decline, of 21 points to 6%, followed by the North East with a 14-point setback to -2%. Overall business confidence fell back in six of the eleven regions, especially in Wales (down 14 points to 32%). Otherwise the declines were fairly small, ranging from 6 points in Scotland to 45%, to 1 point in the West Midlands to 42%. The South East, South West and East Midlands & the East recorded the largest increases of 6 points each with all three regions also posting balances above the national average of 42%. 14

15 ANALYSIS BY SIZE OF FIRM EXPECTED PROFITS ARE STRONGEST FOR FIRMS WITH 2M- 5M ANNUAL TURNOVER ORDERS IN THE NEXT SIX MONTHS PROFITS IN THE NEXT SIX MONTHS Below 1M 1 2M 2 5M 5 M 15M Over 15M Below 1M 1 2M 2 5M 5 M 15M Over 15M expected total orders over the next six months fell back for most company sizes. The exceptions were those with sales below 1m turnover, where it was unchanged at 36% which was the lowest reading, and those above 15m where it rose by 1 point to 49%. Firms in the 1m- 2m band recorded the largest decline of 12 points to %. There was an 8-point decline to 32% in the net balance for expected profits in the next six months for companies with - 15m of annual sales. The highest balance of 42% was for firms with 2m- 5m turnover a rise of 1 point compared to the previous survey. This was followed by those in the 5m- m band with 38%. 15

16 BUSINESS OPTIMISM ABOUT THE NEXT SIX MONTHS IS HIGHEST FOR FIRMS IN THE 2M- 5M BAND EMPLOYMENT IN THE NEXT SIX MONTHS BUSINESS CONFIDENCE Below 1M 1 2M 2 5M 5 M 15M Over 15M Below 1M 1 2M 2 5M 5 M 15M Over 15M The slight reduction of overall expectations in the latest survey has been driven by firms with turnover below 1m, 2m- 5m, and over 15m. Among those firms who envisaged additional headcount, the largest net balance increase was in the 1m- 2m category who posted a 5-point gain to 23%. Overall business confidence fell back across firms in the middle of the turnover distribution while rising for those in the tails. Companies with less than 1m of annual sales reported a 1-point rise in the net optimism balance to 36%, while those with over 15m posted a 2-point improvement to 44%. With the exception of the smallest companies, all firms reported net balances in the 41%-46% range with highest score belonging to those with sales of 2m-5m, followed by the 5m- m category at 45%. 16

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