Announcing the results of the final Inflation Report before stepping down, the governor of the Bank of England had some good news for UK businesses. Economic growth is predicted to be around 1% this year, up from its estimate of 0.9% in the last quarter. Although this isn't spectacular, it is clearly heading in the right direction; and while there is still a lot of pessimism about the economy, it is important to step back and take stock of the reality of the situation, as there are a number of reasons why it isn't as bad as many believe.
Firstly, there may not even have been a double dip recession, let alone a triple dip. Much of the present day negativity comes from Q1 2012 statistics showing that the economy shrank by 0.1% - the second part of the double dip, following the initial growth dip in 2008. However, recent figures from the Office of National Statistics say that rather than shrinking, the economy may have just flatlined. As a result, calling it a double-dip recession may have turned into a self-fulfilling prophecy, with business confidence and consumer spending mimicking recessionary behaviour.
Indeed, the growth figures from earlier in the year have helped to improve business confidence. In recent global research we carried out, it is clear there is growing optimism in mature economies about the economic outlook for 2013. Globally, 27% of businesses surveyed are optimistic about the economic outlook, up from just 4% from the previous quarter. This is reflected by an increase in firms across the EU planning to invest in plant and machinery in 2013, from 26% in Q4 2012, to 44% in Q1 2013. Our most recent quarterly Business Confidence Monitor* for Q2 2013, supports this improved outlook. Business confidence for firms in the UK is at its highest level since Q3 2010, and is up nearly a third compared to Q1 2013. We're also hearing positive news from our clients around their current performance and plans for growth. For many, this is based on stable domestic demand, as well as an expected improvement in export growth, two key components for further economic improvements.
Further to this, research undertaken by us in conjunction with the Centre for Economics and Business Research (CEBR) found that mid-sized businesses in Britain have actually for the most part been growing well during the past few years of economic stagnation. After taking a closer look at this growth, it found that mid-sized businesses have been able to boost their productivity, with turnover per employee 18% higher than the UK average, and as a result increase their turnover by £25.7 billion over the past year.
The difficult economic climate of the last few years has acted as a proving ground for companies, with those that were able to remain in business emerging lean, organised and efficient. Firms have been forced to take a fundamental look at how their business is run in order to weather the worst of the recession. The clear effective governance, robust planning and attention to financial levers firms had to adopt during the recession, means they are now equipped to face Britain's post-recessionary economic landscape.
However, for sustainable growth, companies have to remain confident. This confidence needs to come from somewhere, so the government must shout about how well we're doing, and keep providing support for British businesses. Although the country has had to adjust its growth expectations over the past year, we have to remain confident to ensure the current growth levels are maintained and strengthen.
CEO, Grant Thornton UK
*The quarterly Business Confidence Monitor is produced in conjunction with the ICAEW.