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Focus on UK (IBR 2013)


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Drawing on data from the IBR, the EIU and the IMF this short report considers the outlook for the UK economy, including the expectations of 500 businesses interviewed in the UK, and more than 12,500 globally, over the past 12 months.

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Focus on UK (IBR 2013)

  1. 1. Focus on: UK Grant Thornton International Business Report 2013
  2. 2. 4$ and funds, Over hedgemutual funds Ranked in ver Australia 60% Economy60% special purpose vehicles Focus on: UK and mutual funds the top 6 Over in major markets remains a key trade partner of our member firms’ Combined global more than 63 million more than people revenues of firms’ member Introduction byof ourtop clients 63 million expanded Economy $300m peopleGDP t eroM top clients of the One 51 0.7% 0.7% expanded by operate in financial services £1.6 GDP trillion ‘large six’ £1.6 The UK is an advanced economyin financial services of more operate in financial services 2012 than 63 million people. In 2012, its GDP was approximately £1.6 trillion (US$2.5 trillion), global accountancy making it the sixth largest economy in the world. uA in Q2 2013 Drawing on data sources such as the in Q2 2013 Providing services for asset Economist Intelligence Unit (EIU), the managers, fund administrators, International Monetary Fund (IMF) and the hedge funds, Grant Thornton International Businesspurpose vehicles special Report (IBR), this short report considersand mutual funds the outlook for the economy, including the expectations of 500 businesses interviewed in the UK, and more than 12,500 globally, over the past 12 months. ow Economy Scott Barnes CEO Grant Thornton UK LLP T +44 (0)20 7728 2428 E expanded by 0.7% in Q2 2013 ’ 6th organisations trillion as recognised largest economy by Wall Street largest 6th h economy globally global globally Over 60% of our member firms’ top clients operate in financial services more than 63 million people GDP £1.6 trillion n ah t e r o m 6th noillim 36 largest economy Focus on: UK 2 ’
  3. 3. Providing services for asset managers, Focus on: UK fund administrators, hedge funds, organisatio as recognis by Wall Stre special purpose vehicles and mutual funds Economy Economy expanded by The UK economy appears to have turned a corner in recent months. Austerity measures introduced in 2010 to rein in a budget deficit which had climbed above 12% have weighed on growth, with many businesses and consumers joining the government in deleveraging. 13.7% However, stronger growth in the first half of this year led forecasts to be revised upwards although the economy still remains around 2.5% smaller than its 2008 peak. The eurozone and the US remain key export markets but 10.7% growth in demand for British goods and services is being driven outside of Europe54.6% by economies such as 8.2% China and South Korea. • the economy expanded by 0.8% in Q3, up from 0.7% in Q2 - a rise of 1.5% year-on-year • the third quarter improvement was driven by 0.7% growth in the services sector, which accounts for around 80% of UK GDP, whilst the construction sector expanded by 2.5% • industrial production rose by 0.6% between the second and third quarters, driven by 0.9% surge in manufacturing activity 5.8% the top 6 revenues of $300m 7.3% 12.9% 54.6% 58.9% 7.7% 5.5% 5.8% 7.7% the top 6 Providing services for US Germany Netherlands 58.9% France Ireland Other 10.7% 8.2% 7.0% Ranked in the Australia top 6 top clien operate in financial ser 1.4% 12.9% 2013 forecast 7.7% GDP growth 5.5% 6.1% 7.7% forecast growth in 2014 Australia remains a key trade partner 1.4% 1.4% revenues of $300m One of the 6.1% 6.1% One of the Ranked in Australia ‘large six’ ONS 2013 Source: the top global accountancy a key for 6 remains services Providing Ranked in organisations managers, in major markets Australia asset trade partner 2012 5.8% of our member fi in Q2 2013 • the seasonally adjusted trade Import origins (2012) deficit stood at £3.3 billion (US$5.3 billion) in September, with in major markets 7.3% a goods deficit of £9.8 billion partly remains a key 13.7% offset by inservices surplus of £6.5 trade partner a major markets 12.9% billion; the trade deficit widened from 7.3% 10.7% 13.7% Combined global £5.5 billion in Q2 to £9.7 billion in Q3 7.7% 12.9% • house prices increased by 3.8% in the Combined globalin the 8.2% 10.7% 54.6% year to August, up from 3.3% 58.9% 5.5% year to July 7.7% 7.0% 7.7% • the unemployment rate stood at 7.7% 8.2% 54.6% 58.9% in financial5.5% services 5.8% in Q3, with the number of unemployed 2012 falling by 18,000 to 2.49 million. 7.0% 7.7% in financial services Ranked in 60% 7.3% 13.7% 7.0% Key Indicators 0.7% Export destinations (2012) Over as recognised administrators, fund remains a key asset managers, hedge funds, by Wall Street in major markets trade partner purpose vehicles fund administrators, special Combined hedge funds, global and mutual funds US Germany Netherlands France China Other 2013 forecast GDP growth 2013 forecast GDP growth forecast growth in 2014 forecast growth ‘large six’ in 2014 global accountancy organisations as recognised by Wall Street Focus on: UK 3 Over
  4. 4. 54.6% Ranked in 5.8% 10.7% 8.2% 7.0% 6.1% forecast growth in 2014 58.9% 83 Australia 89 85 62 France Source: IMF (2013) Germany 7.7% 48 5.5% 50 12.9% 56 50 7.7% UK 2008 2013 forecast Focus on: UK 4 GDP growth 6.1% 2018 1.4% 2013 forecast growth in 2014 organisations the top 6 87 remains a key trade partner global accountancy in major markets Over Combined global and mutual funds ‘large six’ revenues of special purpose vehicles One of the hedge funds, $300m as recognised asset managers, by Wall Street One of the fund administrators,services in financial 2012 in financial services organisations revenues of $300m General government net debt (% GDP) 63 million ‘large six’ Combined global people GDP £1.6 trillion 6th largest economy in major markets globally the top $300m 6 remains a key trade partner One of the 1.4% GDP growth ‘large six’ Australia 2012 revenues of in Ranked decline over the next few years, although 7.7% not as quickly as forecast at the beginning of the present parliament, suggesting the government’s fiscal austerity programme has some way to run. The deficit is expected to fall to 7.6% in 2013 and again to 6.4% in 2014, reaching 5.1% in 2017 but still well above the EU target of 3%. And public debt continues to rise, climbing to 85% of GDP in 2013 and 88% in 2014, before peaking at 91% in 2016. The labour market remains complex. Real wages remain around 9% below 2008 levels but private sector employment has actually risen over the same period, accountancy suggesting that productivity has declined. Whether existing workers, and those expected to move into jobs as the unemployment rate falls from 7.7% in 2013 to 7.3% in 2014, can be used more effectively, will shape the UK’s growth trajectory. global accountancy Combined global 5.5% forecast growth in 2014 more than which accounts for more than 40% of 7.0% exports, provides further encouragement although UK businesses have diversified 5.8% away from traditional markets due to regional stagnation in recent years. Exports are expected to climb by 2.0% in 2013, accelerating to 4.3% in 2014. Investment fell by more than 14.0% in 2009 and is not expected to pass its 2008 level until 2016, despite increases of 1.1% and 2.5% in 2013 and 2014 respectively. Interest services in financial rates are likely to remain at record lows for some time with new 2012 Bank of England governor, Mark Carney, indicating that a rise in the base rate will not be considered until unemployment falls to 7% as part of his policy ofglobal ‘forward guidance’. A sharp rise in inflation might see the BoE change its approach but price rises are expected to average 2.7% in the Providing services for above the short to medium-term, albeit target rate of 2%. 58.9% Providing services for 8.2% 6.1% 2013 forecast organisations as recognised by Wall Street 54.6% fund administrators, remains a key in major markets trade The budget deficit is expected to partner The end of recession in the eurozone, Over of our member firms’ top clients the top 6 Australia operate in financial services Ranked in 60% 7.3% Growth forecasts for the UK have been revised upwards following a 13.7% raft of positive data. The economy is now expected to expand by 1.4% in 2013, rising to 1.8% in 2014. Despite fears that rising house prices 12.9% could lead to another credit10.7% bubble, there are encouraging signs that the economy is starting to rebalance away from consumption, 7.7% with investment and exports playing a greater role. asset managers, 7.7% hedge funds, 5.8% Economic outlook 5.5% special purpose vehicles in Q2 2013 7.0% 7.7% and mutual funds 58.9% Economy 8.2% expanded by Focus on: UK 0.7% .6% GDP growth 10.7%
  5. 5. Focus on: UK Business growth prospects Following the dramatic rise seen in Q2, business optimism in the outlook for the UK economy jumped again in Q3 following eight straight previous quarters stuck below zero (ie net pessimism). The net 76% figure is an IBR record-high for the UK and makes the business community the third most optimistic in the 45-economy survey. Business leaders in the UK are now more optimistic than peers in Germany (51%), Sweden (48%) and France (-17%), although all showed improvements over the past three months. As confident executives are more likely to take risks and invest, it follows that UK business leaders are also increasingly bullish about the growth of their own operations. In 2013, on average net 49% of UK businesses expect to increase profitability, up from just 29% in 2011. Peers in Sweden (40%), Germany (30%) and France (19%) are far less optimistic. The UK figure is still some way below pre-crisis levels but continues a steady improvement over the last couple of years. The same is true as far as job creation is concerned: net 31% of UK businesses expect to expand their workforces in 2013, down from 37% in 2008, but up on the 18% recorded in 2011 and ahead of German (15%), Swedish (14%) and French (6%) peers. Net percentage of businesses optimistic for the economic outlook (next 12 months) Net percentage of businesses expecting to see profits rise (next 12 months) 80% UK 70% 80% 70% 60% Germany Sweden 50% 60% Shortage of finance affecting 15% 50% UK 30% 40% Sweden 20% 30% Germany 10% 20% 40% 0% 10% -10% France -20% 0% -10% -30% of UK businesses France -20% -40% -30% -50% Q4 2011 Q1 2012 Q2 2012 Source: Grant Thornton IBR 2013 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q2 2013 2007 2008 2009 2010 2011 2012 2013 Source: Grant Thornton IBR 2013 23% Focus on: UK 5
  6. 6. Focus on: UK Growth constaints A lack of demand shot to the top of UK business leaders’ concerns during the financial crisis, peaking at 44% in 2009, albeit slightly lower than peers in France, Germany and Sweden. Since then there has been a gradual easing of demand conditions, with 24% of UK businesses citing a shortage of orders as a growth constraint in 2013, level with peers in Sweden. A lack of demand is still more of a concern for UK businesses than their German counterparts, but business leaders in Germany have seen the issue rise over the past 24 months, after an initial steep decline in 2010 following the financial crisis. The issue of finance has been in the headlines with the government pushing schemes such as ‘Funding for lending’. The IBR results suggest that access to finance is far from the biggest concern businesses are facing; indeed just 15% of UK business leaders expect a shortage of finance to constrain their ability to grow their business over the next 12 months. This is only marginally above levels seen in 2007-8 (11%). Before the crisis, a lack of skilled workers was a drag on expansion plans for around a third of UK businesses. This has fallen to less than a fifth today, around half the level in Germany which has much lower unemployment. Shortage of finance affecting Percentage of businesses citing demand as a constraint on their growth plans 49% Sweden 44% 24% 24% UK 15% 51% of UK businesses 58% France 38% 70% 58% Spain 49% 18% Germany 54% Italy 23% of UK businesses expect to increase exports Source: Grant Thornton IBR 2013 2009 2013 Focus on: UK 6
  7. 7. Focus on: UK Rebalancing the UK economy Net percentage of businesses expecting to increase investment in plant and machinery (next 12 months) Commentators and politicians have stressed the need for the UK to rebalance its economy away from consumption, towards exports and investment – interestingly, the exact opposite of what the new leadership in China is trying to do. The view from business leaders in this regard is positive. Net 40% expect to increase investment over the next 12 months, which continues a steady rise from 2009 to bring expectations back to parity with pre-crisis levels. Even German (37%) business leaders are less optimistic in this regard. The proportion of UK businesses expecting to increase exports has actually risen past pre-crisis levels indicating that they have been able to expand their horizons beyond the troubled eurozone. Net 23% of UK business leaders expect to increase exports over the next 12 months, up from 15% in 2008. Businesses in Germany (21%), France (15%) and Sweden (10%) are less hopeful. However, the UK has some way to go before it can compete with the German export machine, which ran the largest absolute trade surplus in the world in 2012. Tellingly, Germany tripled the proportion of exports going to the BRIC economies between 2000 and 2012 to 11.7%, a figure forecast to more than double by the end of this decade. By contrast just 5.6% of UK exports went to the BRICs in 2012, although this was up from 3.3% in 2007. 51 37 43 40 37 Shortage of There is also room for improvement 32 23 finance affecting in terms of international presence. Just 17 29% of UK businesses have operations abroad, lower than rates in Germany (46%), France (35%) and Sweden (33%). More encouragingly, 2008 2008 2013 2008 2013 2008 2013 2013 the proportion planning new or further international expansion was higher than France and Sweden, with traditional markets such as Western Europe (57%) Shortage of Net percentage of businesses expecting to see exports rise (next 12 months) and North America (43%) joined by affecting finance Shortage of emerging ones, such as China (37%), finance affecting 2008 15 the Middle East (32%) and India (30%), high on the list of targeted destinations. 2013 23 15% of UK businesses UK Germany Sweden France 15% 15% of UK 23% of UK businesses expect to increase exports businesses of UK businesses 41 2008 21 2013 30 2008 23% 23% 2013 businesses expect to increase 2013 of UK of UK businesses exports exports 10 24 2008 15 expect to increase UK Germany Sweden France Source: Grant Thornton IBR 2013 Focus on: UK 7
  8. 8. IBR 2013 methodology The Grant Thornton International Business Report (IBR) is a quarterly survey of approximately 3,300 senior executives in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now interviews more than 12,500 business leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally. The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors. Q3 data is drawn from 3,300 interviews (125 in the UK; 100 in Germany; 150 in Sweden; 75 in France) conducted in September 2013. 2013 data is drawn from over 12,500 interviews (500 in the UK, 400 in Germany, 600 in Sweden; 300 in France) conducted between November 2012 and September 2013. To find out more about IBR, please visit: Dominic King Grant Thornton International Ltd Global research manager T +44 (0)207 391 9537 E Wendy Watherston Grant Thornton UK LLP Head of PR T +44 (0)20 7728 2309 E © 2013 Grant Thornton International Ltd. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. CA1310-03