Midlands businesses see drop in profit expectation amid bleak economic outlook

Grant Thornton’s Business Outlook Tracker, monitoring mid-market business sentiment in December, has revealed a sharp decline in profit expectations since October.

Some 32% of businesses anticipate a decrease in profit over the next six months.

The overall business optimism trend has decreased across all indicators, with investment expectations dropping in various categories.

Key findings indicate a 20% point drop in profit expectations since October, reaching 46%, 9 points below the rolling average.

Economic growth optimism remains flat at 58%, 11 points below the rolling average, and just 1 point higher than the lowest recorded level.

Revenue growth expectations fell by 12 points below the rolling average to 58%, and 18% of respondents expressed pessimism, marking the highest level in three years.

Pessimism levels also reached a record high for funding positions (17%).

Investment expectations show a slowdown, with declines in technology, down by 8 points, recruitment, down by 6 points, skills development, down by 5 points, and growth in international markets, down by 5 points since the last round in October.

James Brown, practice leader for Grant Thornton UK LLP, said: “Throughout most of 2023, businesses have remained relatively optimistic about the economy and their ability to weather the many challenges. This latest set of business outlook data suggests that businesses are now starting to come face to face with hard realities resulting from a combination of poor economic performance, biting covenants, higher interest rates, relatively high levels of inflation, energy cost increases, political uncertainty, and decreased investment expectations.

“The only way to get the economy onto a high growth, low inflation path which leads to economic prosperity and welfare gains is to invest in areas that improve productivity, close the productivity gap, and enhance skills. Currently, there are decreased investment expectations across the board, including in these key areas. The government has put some measures in place such as the Apprenticeship Levy, green grants, and R&D tax credits – and while businesses should take advantage of these, they currently don’t seem to be sufficient to ward off all the pressures faced. Businesses will know that investing in these areas is critical to their long-term competitive success – so the fact that they are cutting back in these areas paints a clear picture of the pressure they are under.

“With all of this in mind, it is understandable that optimism is at an all-time low, as businesses are in the thick of the storm and trying to find a way through. However, over half (58%) of respondents remain optimistic about the economic outlook, suggesting that businesses can still see light at the end of the tunnel. The economy is predicted to improve from 2026 onwards, by which point government policies such as childcare and pension reform will hopefully have kicked in and started loosening the labour market.”


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