S&P Global, UK Business Outlook – November 2024
S&P Global’s UK Business Outlook is published three times a year. The November report provides further industry insights and anslysis within the current UK economic environment, including employment and investment.
This report reveals how confident UK private sector businesses feel about their prospects for the next 12 months. The S&P Global UK Business Outlook Survey is based on a panel of around 1,400 companies in the manufacturing, services and construction sectors. The latest survey was conducted between 10-29 October.
The key global composite indices include expectations for Business Activity, Employment, Capital Expenditure, Input Prices, Output Prices and Profits.
These results are published as a weighted ‘Composite’ Index (all companies), as well as broken down by sector (Manufacturing and Services). Separate results are also included for the construction sector.
The survey uses net balances to indicate the degree of optimism or pessimism for each of the survey questions. These net balances vary between -100 and 100, with a value above 0 signalling a positive outlook for the coming 12 months.
UK remains an optimistic nation
Activity expectations slip to 12-month low in October
The net balance of surveyed UK private sector firms projecting an expansion in business activity over the next 12 months slipped to +41% in October, down from +44 in June and the lowest in exactly one year. This was also slightly weaker than the average recorded over the survey’s history (+44%). However, the reading was still consistent with a robust level of confidence in the near-term outlook.
A slide in output expectations was especially observed in the manufacturing sector during October, where net sentiment dropped from +56% in June to +43%. By comparison, services firms registered a much smaller decrease, falling from +42% to +41% in the latest survey period.
Lower UK business expectations were also consistent with the global trend. Eight of the 12 nations tracked by the survey recorded a decline in sentiment, including most European countries. The UK in fact remained one of the most optimistic nations.
According to surveyed firms, growth opportunities revolved around stronger domestic economic conditions, new product development, technology investment and growth of exports. Firms also expect a loosening of monetary policy to propel activity, while some anticipate a boost to demand from rising government spending.
At the same time, there were concerns that increases in business costs, linked to higher wages and payroll costs, could limit the rate of expansion and dampen profits. Supplier-related inflationary pressures, geopolitical uncertainty, staff shortages and foreign competition were also noted as economic headwinds.
Hiring and investment plans soften
The decline in activity growth expectations led to less upbeat predictions towards employment and capital expenditure in October.
In total, a net balance of +18% of UK businesses expects to increase staffing levels over the forthcoming year, the lowest since October 2022. This was wholly driven by the manufacturing sector where the net balance fell sharply from +25% to +12% (services remained at +18%). Nevertheless, overall UK employment predictions remained higher than in both the eurozone (+2%) and globally (+9%).
Capital expenditure forecasts remained positive but only slightly, with net optimism (+3%) a third of the level recorded in the previous survey (+9%) and the joint-lowest in two years (alongside October 2023). Manufacturers and service providers were alike in expressing less positive investment intentions for capital projects.
Intentions towards research and development turned negative for the first time in a year (-1%), driven by pessimism at service sector companies. Manufacturers on the other hand planned an increase in R&D (+6%), although the degree of positivity weakened from June.
For both capex and R&D spending, forecasts at the national level were lower than those seen worldwide. Capital expenditure plans at global firms softened slightly in October, whereas R&D forecasts remained stable and positive.
Output price inflation forecast to quicken
UK businesses were generally of the view that prices charged for goods and services will rise at a sharper pace over the next 12 months.
The respective net balance rose from +39% to +42% in October, keeping it above its long-run average. The uptick was driven by services (+43%, up from +39%) as output price forecasts across manufacturing eased to a 12-month low (+36%, down from +40%)
UK companies registered stronger intentions towards prices charged than almost any other country monitored. The worldwide net balance was +22% in October, holding steady to the level recorded throughout 2024.
Staff costs appear set to remain the dominant driver of price pressures for domestic firms, and expectations ticked up slightly for the first time in a year. Both the manufacturing and service sectors registered stronger projections for staff cost inflation than in June. However, the overall net balance (+67%) was at its second lowest since February 2021.
In contrast, non-staff cost expectations dropped to their lowest level in nearly four years (+45%), albeit remaining firmly above the long-run trend.
There were some concerns among survey panellists that geopolitical tensions could lead to rising material costs and further pressure on freight prices.
Meanwhile, profits forecasts slipped to their weakest in 12 months, with the respective net balance falling from +23% in June to +17% in October. Manufacturers registered a particularly marked fall in the profits outlook, with positivity dropping to a two-year low (+21%, down +35%). Profits forecasts at service providers weakened for the second consecutive survey period (+17%, down from +21%).
Marked drop in confidence across construction sector
October data indicated a sharp fall in business optimism at UK construction firms, as the outlook for activity, profits, hiring and capex slid to two-year lows.
The net balance of UK construction firms expecting a rise in activity stood at +23% in October, falling from +40% in June and bringing the sector well below the optimism levels seen across manufacturing and services. Confidence was also at its lowest in two years.
Falling business sentiment commonly reflected concerns over the impact of government policy on employment costs. Survey respondents often noted higher payroll costs as a threat to business activity, alongside skills shortages, high interest rates and material prices.
At the same time, government policy support for house building was noted as one of the main growth opportunities. Firms also pointed to green initiatives, technology improvements and reduced competition.
The outlook for profits across the UK construction sector deteriorated sharply in the latest survey. At +12%, the respective net balance was down considerably from +34% in June and at its lowest since October 2022.
Amid fears of higher labour costs, firms anticipated only a modest increase in employment over the next 12 months, with the net balance dropping from +31% to +9%. Similarly, capex expectations were neutral in October after reaching a 28-month high in June. In both cases, net balances were the lowest recorded in exactly two years.
While construction firms highlighted some inflation risks, overall expectations towards both staff and non-staff costs dipped to their lowest levels for 12 months. Staff costs were forecast to rise at a quicker pace (+64%) than non-staff inputs (+33%). As such, the net balance of firms planning to raise their selling prices dropped from +51% in June to +44% in the latest survey.
