Businesses confidence bounces back despite labour shortages and rising costs
Almost three quarters (73%) of UK businesses are confident about growth over the next three years, according to the latest Santander Trade Barometer published today. With the loosening of pandemic restrictions and the opening up of much of the UK economy, business confidence has now surpassed the 65% peak reached in Spring 2021.
Regional business confidence has bounced back too with all regions improving, except Scotland, which has dropped almost 10% from 74% to 64%. The South West and Wales saw the biggest rise, up almost 15% since Spring 2021 to 74%.
Businesses surveyed have now largely moved past the initial pandemic-driven slump, and performance is starting to recover to pre-Covid levels, with 43% reporting an improved performance over the last 12 months. Investment plans are also recovering, with almost half (48%) of business planning to hire new staff, a third (34%) planning to invest in R&D and over a quarter (26%) purchasing new equipment.
Challenges to growth: Labour shortages and supply chains
Despite the bounce back, UK businesses are bracing themselves for ongoing disruption to supply chains well into next year. Over a third of UK businesses are anticipating the issues to continue for the next 12 months, with the Barometer showing this is now the greatest challenge anticipated, followed by labour shortages.
Being able to attract the right staff is now seen by more than two thirds (67%) of businesses as the single most important driver for growth going forward, more important even than the trajectory of the pandemic and the overall performance of the UK economy. The industries facing the greatest challenge in retaining staff are agriculture, logistics and hospitality who have previously relied on workers from the EU. A quarter of businesses (25%) are concerned about how Brexit has impacted their ability to access to EU workers, up from 16% six months ago. For over a third (35%) of all UK businesses, challenges hiring staff has been the biggest negative impact from the pandemic, increasing to 44% for those businesses only operating in the UK. When it comes to overseas trade, a quarter (26%) of businesses say recruitment or access to the right skills are the biggest challenge they face.
International trade
A quarter (26%) of companies say that international trade has become more important as a result of Covid-19, whereas only 5% say it’s become less important. According to the Barometer, internationally trading businesses are more confident with 4 in 5 (79%) expecting growth over the next three years compared to 62% of domestic only businesses. This trend also continues into performance, with 72% of international businesses expecting an increase in turnover in the next 12 months versus 61% of domestic companies.
John Carroll, head of international & transactional banking, Santander UK said: “Faced with supply chain disruption, labour shortages, rising energy and transport costs and a difficult winter trading season ahead, it’s reassuring to see UK companies continue to remain optimistic, with increases in both business performance and expected future growth. Providing they can attract and retain the staff they need to succeed; they see a big opportunity for expansion in overseas markets. International trade can play an important role in helping UK businesses to emerge from the pandemic and get back to growth and with the right support and partners, these internationally trading businesses can thrive. We’re here to help them with beyond banking support as they navigate the challenges.”
Business’ biggest concern about trading internationally in most regions of the world remains bureaucracy (45%), followed by regulations post Brexit (37%) and finding the right partners (35%). But transport and shipping costs are rapidly catching them up, increasing from 27% in the Spring and making an appearance as the fourth concern (34%), with 15% of businesses saying that its supply chain is no longer profitable as a result of the Brexit trade deal.
North America (39%) has extended its lead over the EU (35%) as the region seen as offering the greatest growth opportunities during the next 12 months and on a country basis, the US (32%) leads Germany (20%), China (18%), France (17%), Australia and Canada (both 16%), and India (15%) as offering the most attractive growth prospects.
Brexit challenges
While concerns about the impact of Brexit have fallen again, it still remains a significant issue for 45% of business (49% of international businesses). The departure from the EU in January makes dealing with the EU more time consuming for 37% of companies, while the same proportion say they now have to pay higher charges, tariffs or local taxes as a result. Businesses are more likely to report they are exporting less since the end of the Brexit transition period – and not just because of Covid. 60% of international businesses who are selling less overseas blame increased costs, while 42% point to extra regulation in EU markets.
Looking at trade between Britain and the EU, 38% of international businesses say the deal is ‘not sufficient’ for them to continue EU trade. Almost a quarter of business (23%) said the increase in costs and bureaucracy will prevent their business from continuing to trade, while 15% say their supply chain will no longer be profitable as a result of the EU trade deal.