KPMG's latest Business Outlook survey offers a small crumb of optimism for business in the UK. Across the manufacturing and services sectors it indicates some level of confidence but this is tempered by comparisons to the business outlook six months ago.
According to the data, a significant minority of manufacturers expect activity to rise over the coming year. However, the balance of positive sentiment - at 31 percent - has almost halved from 59 percent in June, this year. One in three manufacturers (34 percent) also anticipate an increase new orders over the next 12 months.
Although an encouraging sign, the figure reflects a fall as it has dropped from 58 percent, 6 months ago. Reflecting the cautious optimism further, just 5 percent believe employment prospects will increase.
It represents a dramatic fall from the same time, last year, (23 per cent) and is in line with wider predictions about the state of the job market*. KPMG’s data also shows similar results in the service sector across the UK, with the same proportion (33 percent) optimistic that both current levels of activity and new business will increase between now and winter 2012. Service companies are also suggesting that cash flow will continue to be an issue.
Although 1 in 5 (21 per cent) claim they will be able to increase price points, the profit margin is likely to decline, with 46 percent anticipating a rise in costs. When it comes to levels of employment in the service sector, the figures look better at 10 percent. Yet, in line with the weaker expectations for activity growth, the rate of job creation predicted is the lowest since June 2010. Commenting on the latest figures, Malcolm Edge, KPMG’s UK Head of National Markets, said: “Even though both the UK manufacturing and services sectors are anticipating growth across most key indicators, expectations are modest at best."
Clearly, the UK manufacturing sector is continuing to feel the repercussions of what seems like an interminable series of supply chain interruptions – natural disasters in Japan, floods in Thailand, political turmoil in North Africa, debt crisis in Europe – it is a very complicated world for UK manufacturers today. “Thankfully, the UK service sector seems to be somewhat optimistic about business activity over the next year. But on closer inspection, it becomes clear that cost inflation is expected to stay high, revenue growth is anticipated to level out, and capital expenditure is set to decrease for the first time in four surveys. None of these are strong signs for sustained growth in the long-term.” The survey goes on to explore business optimism across the globe.
Key findings include: Europe witnessing the most dramatic drop in confidence, with business sentiment hit strongly by the region’s ongoing debt turmoilgloom spreading across the globe, impacting both developed and emerging economies alike. Concerns about the knock-on effects from Europe, combined with a continuing softness in global economic conditions, have also taken a toll on growth expectations in the emerging markets. BRIC area companies signalled a drop in optimism for the second consecutive survey period, reaching the lowest level in about three years.
Interestingly, US businesses remained among the most positive worldwide in their growth forecasts. However, confidence within the US market has dropped since June, with manufacturers in particular scaling back their expectations. According to survey respondents, lower business sentiment in the US reflects economic uncertainties both domestically and globally.
Malcolm Edge adds: “Businesses around the world are grappling with massive uncertainty that is driving down sentiment across the board. This data categorically demonstrates that the world is in the midst of a prolonged and deep crisis of sentiment. Clearly, the European contagion has already spread and is exacerbating weaknesses in other economies around the world. In particular, the manufacturing sector has seen a substantial drop in confidence, likely reflecting their exposure to a weaker global trade environment.”
“While most expected sentiment to drop in the Euro-zone since our last survey, few anticipated the declines that we have seen from the emerging markets and BRIC countries, which were widely thought to have rounded the corner on the global recession."
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Notes to Editors:
* KPMG/REC Employment surveysAbout KPMG KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.