business in britain · 2016-06-21 · i am very grateful to all 1,796 businesses that participated...

Business in BritainA Survey of Business Opinions and Trends | 41st edition January 2013

Contents

01 Introduction

02 Recent trends in the SME market

08 The industrial picture

10 The regional picture

12 Analysisbysizeoffirm

A Survey of Business Opinions and Trends

Analysis and text by:

Hann-Ju Ho, Economic Research

Lloyds Bank Commercial Banking 10 Gresham Street, London EC2V 7AE, Tel (020) 7158 1745.

Email: [email protected]

1

Introduction. Economic circumstances remain challenging for our businesses, but there are glimmers of hope that underlying economic prospects are improving. Indicators of economic activity in our survey, such as sales and employment, improved a little in the past six months, particularly forsmallerbusinesses.Lookingahead,businessconfidenceforthenext six months increased to the strongest level since the economy emerged from the 2008/9 recession. Encouragingly, sectors such as construction and retail, where sales have lagged behind in the past sixmonths,sawthelargestpick-upsinbusinessconfidenceforthe firsthalfof2013.Businessconfidenceremainedthestrongestinmanufacturing and business and other services. From a regional perspective,businessconfidenceincreasedacrosstheboard.

A key ingredient for the more upbeat sentiment is a rise in expected export sales in the nextsixmonths,particularlytoEuropewhichislikelytoreflectsomeconfidencethatpolicymeasures put in place will lead to an eventual recovery in the euro area. Stronger expected sales in the next six months, together with an anticipated improvement in pricing ability, haveresultedinprofitexpectationsrisingtoafive-yearhigh.Nevertheless,businesses remain cautious. Although expected staff and capital spending levels are anticipated to improve, they remain relatively weak by historical standards. The greatest threat to businesses remains weaker domestic demand, though the share of businesses citing regulation as their biggest concern was higher than that for the cost and availability of financeforthefirsttimesince2008.

I am very grateful to all 1,796 businesses that participated in the survey to help provide such a comprehensive view of recent trends and future developments in the UK economy. I look forward to supporting you and would like to wish you every success in 2013.

Stephen Pegge Director of SME Markets Lloyds Banking Group Commercial

2

Sales and orders: % balance, up minus down Sales Total orders

-40

-30

-20

-10

0

10

20

30

40

50

1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012

Recent trends in the SME market

Recent trends in the SME market.Underlying sales and orders increased slightly in the past six months.

Export sales: % balance, up minus downEurope Rest of the World

-15

-10

-5

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales, orders and export sales balances over the last six months.

The net balance for overall sales in the past six months picked up by three points to 12%, but remained lower than in 2011. It suggests a moderate improvement in the underlying sales performance compared with the first half of 2012.

The net balance for total order book levels for the past six months also improved, albeit slightly by two points to 11%. The level of orders has remained near current levels since the economy emerged from the 2008/9 recession, below the average in the period prior to the global financial crisis.

1

2

1

2

The net balance for export sales to Europe fell for the third consecutive survey, byfivepointsto1%,reflectingweakeningdemandintheeuroareaastheeconomy fell into recession.

The net balance for exports to the Rest of the World, however, was unchanged at 17%, as growth in the global economy slowed but showed signs of stabilisation in the latter part of 2012.

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2

2

1

3A Survey of Business Opinions and Trends | 41st edition January 2013

Exports to Europe expected to bounce back.

2013 H1 2012 H2

Expected sales: up 43% 40%

Expected sales: down 19% 21%

Balance 24% 19%

2013 H1 2012 H2

Expected total exports: up 39% 36%

Expected total exports: down 12% 14%

Balance 27% 22%

2013 H1 2012 H2

Expected orders: up 36% 34%

Expected orders: down 12% 14%

Balance 24% 20%

2013 H1 2012 H2

Expected exports to Europe: up 25% 22%

Expected exports to Europe: down 13% 22%

Balance 12% 0%

Signs of improvement in underlying sales and orders in the past six months are expectedtocontinueinthefirsthalfof 2013.Thenetbalancerosefivepointsto24% for total expected sales in the next six months and four points to 24% for total expected orders, levels last surpassed in the July 2010 survey.

Although exports to Europe in the past six months weakened, they are anticipated to bounce back in the coming six months, reflectingconfidencethatpolicymeasurestaken in the euro area will support a gradual recovery in the economy. The net balance for expected exports to Europe in the next six months rose twelve points to 12%, helping thenetbalanceforoverallexportstorisefivepoints to 27%.

Morepositiveprospectsforthefirsthalfof2013.

Businesses in our survey reported a slight improvement in overall sales and orders in the past six months, despite a further weakening of exports to Europe. However, activity remained below the average during the period prior to the globalfinancialcrisisandconfirmsthatthesubsequenteconomicrecoveryhasoccurredatonlyamoderateunderlyingpace.Prospectsforthefirsthalfof2013,however, look more positive, with total sales and orders expected to rise to levels last exceeded more than two years ago when the economy was in the initial stagesoftherecovery.Inparticular,expectedexportstoEuropereboundedquitestrongly,reflectinghopesthatpolicymeasurestakentosupporttheeuroareaeconomy will lead to a strengthening of demand.

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0

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40

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60

70

1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 201220

25

30

35

40

45

50full capacity (RHS)

skilled labour recruitment difficulties (LHS)

% %

Recent trends in the SME market

Theshareofcompaniesreportingdifficultiesinrecruitingskilledlabouredgedup one point to 24%,buthasbeenbroadlyflatinthepastfoursurveysatlevelssignificantlybelowthelong-termaverage,suggestinglimitedupwardwage pressures.

The proportion of companies reporting that they are operating at full capacity also increased one point to 37%. Although this is in line with the long-term average, implying potential capacity constraints, companies may be able to expand capacity at relatively short notice if demand picks up.

The net balance for expected employment in the next six months rose marginally by one point to 6%.Thisisthehighestlevelforfiveyears,justpriorto the start of the recession, but it still represents a moderate pace of hiring comparedwiththeperiodpriortotheglobalfinancialcrisis.

The net balance for expected capital spending in the next six months rose four points to 2%. As with staff hiring intentions, the net balance for investment is atafive-yearhighbutitremainsrelativelyweakbyhistoricalstandards.

11

Hiring and investment intentions rose slightly.

Investment, employment and capacity trends.

22

2

1

Future expectations: % balance, up minus down Investment Employment

-40

-30

-20

-10

0

10

20

30

1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012

1

2

5

Past performance: % balance, up minus downPrices Profits

-60

-50

-40

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-20

-10

0

10

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30

40

50

1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012

Future expectations: % balance, up minus downPrices Profits

-50

-40

-30

-20

-10

0

10

20

30

40

1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012

The net balance for prices charged in the past six months was unchanged at 7%, lower than in 2011 and broadly in line with the long-term average.

Thenetbalanceforprofitsinthepastsixmonthsrosesevenpointsbutremained negative at -15%.Nevertheless,thisisthehighestlevelfortwoyears.

2

The net balance for expected prices in the first half of 2013 rose five points to 17%, above the long-term average.

There was a notable improvement in the net balance for expected profits in the next six months, which increased eleven points to 9%. Although still below the long-term average, this is the highest level since the economy emerged from the 2008/9 recession.

1

2

Profitexpectationshaverebounded.

Prices and profits: past performance and future expectations.

A Survey of Business Opinions and Trends | 41st edition January 2013

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1

6 Recent trends in the SME market

The ability to compete internationally has improved.

Weak domestic demand remains the greatest concern.

Improve Deteriorate% Companies

0

5

10

15

20

25

30

35

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

The proportion of companies citing weaker domestic demand as the greatest threat to their business fell for the second consecutive survey, by 2 points to 47%, though it remains the biggest single threat. Employment and other regulation rose 3 points to 23%,nowhigherthancostandavailabilityoffinancewhichfell1pointto 22%. Among exporters, 25% said that weaker overseas demand was the greatest threat, down 1 point from the previous survey.

There was an increase in the proportion of exporters indicating an improvement in the ability to compete in international markets. The share increased 3 points to 24%, the highest level for eighteen months.

The proportion of exporters citing a deterioration in the ability to compete in international markets fell 8 points to 7%,likelyreflectingimprovedprospects in Europe as well as lower concerns about foreign exchange movements.

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Wea

ker U

Kde

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Wea

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(exp

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Cost

and

ava

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of fi

nanc

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Empl

oym

ent/

othe

rre

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Oth

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% CompaniesPrevious survey Current survey

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7

Overall business confidence increases.

index

-40

-30

-20

-10

0

10

20

30

40

50

1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012

Average

Business confidence.

1

A Survey of Business Opinions and Trends | 41st edition January 2013

Cautious optimism about more positive growth.

Higher expected prices and sales, supported by a more positive outlook for Europe, have boosted anticipated profits in the next six months. Overall business confidence has risen and suggests the potential for a more positive underlying pace of economic expansion in the first halfof2013.Nevertheless,therewereonlymoderateimprovements in employment and investment expectations for the next six months, suggesting that companies remain cautious about prospects.

Business confidence on our measure, which averages the net balances for total sales, orders and profits expectations for the next six months, increased 7 points to 19%, just below the long-term average. This is the strongest level since the economy came out of the initial recession in 2009, driven in particular by stronger profit expectations, but also by improvements in anticipated sales and orders.

1

8 The industrial picture

% balance, up minus down Previous Current

Tota

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Man

ufac

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Cons

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Reta

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hole

sale

Hos

pita

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and

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Tran

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Com

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Busi

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0

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35

The industrial picture.Most sectors recorded higher sales in the past six months.

Sales over the last six months.

The net balance for expected order book levels in the next six months rose in all sectors except Transport and Communications which had been relatively strong in the last survey. The biggest increase was in Construction, while the strongest net balance levels were for Manufacturing and Business and Other Services.

Orders in the next six months.

% balance, up minus down Previous Latest

Tota

l

-5

0

5

10

15

20

25

Man

ufac

turin

g

Cons

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Reta

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Hos

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and

Lei

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Tran

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Com

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Busi

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The net balance for sales in the past six months increased in all sectors except Manufacturing. However, the net balance for Manufacturing was the joint highest with Business and Other Services. The sectors with the lowest net balances were Construction, Retail and Wholesale and Hospitality and Leisure. Transport and Communications was one of the weakest sectors in the last survey, but sales increasedquitestronglyinthepastsixmonths.


Businessconfidenceroseinallsectors.

Prices in the next six months. Business confidence.


Tota

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Man

ufac

turin

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Cons

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Reta

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d W

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sale

Hos

pita

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and

Lei

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Tran

spor

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Com

mun

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Busi

ness

and

Oth

er S

ervi

ces

-10

-5

0

5

10

15

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25

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35

The net balance for expected prices in the next six months increased in most sectors, notably in Manufacturing, Construction and Retail and Wholesale. However, the net balance fell in Transport and Communications and was broadly steady in Hospitality and Leisure and Business and Other Services.


Tota

l

Man

ufac

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Cons

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Reta

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Hos

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and

Lei

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Tran

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Busi

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Oth

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-5

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Businessconfidenceroseinallsectors,reflectingageneralimprovementinexpectedsales,ordersandprofitsinthenextsixmonths.Sectorswiththeweakestnet balances for sales in the past six months, namely Construction, Retail and Wholesale and Hospitality and Leisure, recorded the largest rises in business confidence.ThelevelofbusinessconfidenceremainedthehighestinManufacturing and Business and Other Services.

10 The regional picture

The regional picture.Sales increased in most regions.

Sales over the last six months. Orders in the next six months.


Tota

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Wes

t Mid

land

s

East

Mid

land

s an

dEa

st o

f Eng

land

Lond

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Sout

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Wal

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Sout

h Ea

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Nor

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2

4

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The net balance for sales in the past six months increased in most regions, including for London and the East Midlands and East of England, which have the highest levels. However, it fell in the West Midlands and the South West and Wales. ThelowestsalesbalancelevelswereintheSouthWestandWalesandtheNorth.


Tota

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Wes

t Mid

land

s

East

Mid

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s an

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f Eng

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Lond

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Sout

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and

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Sout

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Nor

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30

The net balance for expected order book levels in the next six months increased strongly for the South East and there was also a notable rise for London. The South East and London have the highest net balances, with the West Midlands close behind.ThelowestnetbalanceswerefortheSouthWestandWalesandtheNorth,but they were only slightly below the national average.



Tota

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Wes

t Mid

land

s

East

Mid

land

s an

dEa

st o

f Eng

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Lond

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Sout

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est

and

Wal

es

Sout

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0

5

10

15

20

25

Abroad-basedriseinbusinessconfidence.

Employment in the next six months.

Businessconfidenceincreasedinallregions,reflectingabroadimprovementinsales,ordersandprofitsexpectedinthenextsixmonths.ThelargestriseswereinLondon and the South East, while the smallest rises were in the West Midlands and the South West and Wales.

Business confidence.


Tota

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Wes

t Mid

land

s

East

Mid

land

s an

dEa

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Sout

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Sout

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1

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10

The net balance for expected staff levels in the next six months increased slightly in London and the South East, and fell in the East Midlands and East of England and the South West and Wales. It was broadly unchanged in the West Midlands andtheNorth.

12

Analysisbysizeoffirm.Sales improved for smaller companies.

Sales over the last six months. Orders in the next six months.

Analysisbysizeoffirm

% net balance, up minus down Previous Current

Total <1M 1-5M >5m0

5

10

15

20

25

30

35% net balance, up minus down Previous Current

0

5

10

15

20

25

30

Total <1M 1-5M >5m

The net balance for sales in the past six months increased for companies with turnover below £1 million and between £1 million and £5 million, but fell for those withturnoverabove£5million.Thedeclineforlargercompaniesmaypartlyreflecttheir greater exposure to lower export sales in the past six months.

The net balance for expected order book levels increased in companies of all turnover levels. The largest rise and the highest level for the net balance was for companies with turnover between £1 million and £5 million.


Businessconfidenceincreasedinallturnoverlevels.

Profits in the next six months. Business confidence.


Total <1M 1-5M >5m-10

-5

0

5

10

15

20

Thenetbalanceforexpectedprofitsinthenextsixmonthsincreasedincompaniesof all turnover levels. There was a particularly strong rise for companies with turnover above £5 million, despite slightly lower net balances for expected sales and prices for this category.


Total <1M 1-5M >5m0

5

10

15

20

25

30

Businessconfidenceincreasedforcompaniesofallturnoverlevels,reflectingstrongerexpectedprofitsinthenextsixmonths,inparticular.Sentimentwasthehighest for companies with turnover between £1 million and £5 million.

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business in britain · 2016-06-21 · i am very grateful to all 1,796 businesses that participated...

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