With several New Year surveys pointing to the UK economy strengthening, business optimism is high. Recent reports of businesses going into recession are usually the result of problems those businesses have had in the past, but there is every reason to remain optimistic. Even so, recovery is fragile and businesses need to carefully consider how they are financed and always try to keep some funds in reserve to cover unforeseen problems.
Business Confidence is on the Increase
A new survey from Lloyds has said that UK business confidence is at a 20-year high.
The most recently published purchasing managers’ index compiled by Markit at the start of 2014 has found that service sector activity fell to a six-month low of 58.8 points, down from 60 in November; still above the 50 mark that separates growth from contraction. They agree that business confidence has risen from 73.5 – its highest since March 2010.
Markit’s Chief Economist, Chris Williamson, said:
“More strong growth looks likely as we move into 2014. It is perhaps inevitable, however, that we may see the rate of growth slow.”
Markit’s manufacturing and construction indexes fell slightly last week, and the firm’s composite index – which includes all activity – dropped to 59.5 in December from 60.4, its lowest level since July.
The UK economy grew at an annualised rate of more than 3% in the second and third quarters of 2013, well above its long-term average of just over 2%. Mr Williamson said the PMI data suggested an even faster rate of growth for the final three months of 2013.
We are certainly seeing the end of the recession. Although we continue to be busy dealing with businesses falling into administration, all of these cases have a common theme – financial problems dating back to four or five years ago. They are businesses that lost money and struggled in 2007 – 2010 and have just managed to keep going until now. Then finally, one small thing goes wrong and that is enough to push them over the edge into insolvency.
A relevant example is an Exeter based printing business that we dealt with that has struggled for the last five years (it had been established in 1981). It had one bad month of sales in May 2013 and with the knock on effect of previous years was pushed into administration, as it just ran out of cash.
The report on the BBC indicated that it believes UK business confidence is running at a 20-year high, and that orders, sales, and profits are all forecast to rise according to another Lloyds Bank survey of 1,500 businesses.
Tim Hinton, a Managing Director at Lloyds, said:
“Businesses are exporting more, in particular to the Asia-Pacific region, but they now also feel more bullish about exporting to Europe since its exit from recession.”
Confidence in the UK Economy Improves
Confidence about the UK economy also improved, with 31% of businesses worried about domestic markets, down from 45% last July.
Meanwhile, Deloitte’s survey of UK Finance Directors found that their appetite for risk has returned, with easier access to bank lending likely to mean their companies will expand and hire more staff in 2014.
The survey of 122 chief financial officers from business services group Deloitte found that bank borrowing was now the most attractive source of funding, the first time they have said that since the financial crisis began.