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Businesses are more confident about the future than they have been for seven years, survey reveals

James Baggott by James Baggott
February 5, 2021
0
Home News

UK firms are more optimistic about the future than they have been in nearly seven years – despite the third lockdown hitting activity.

A closely watched survey of business confidence showed that despite activity dropping in January at the fastest rate since May 2020 firms are still looking forward to the future.

Businesses think that the situation is likely to get better by this time next year, with around 60 per cent predicting a rise in activity over the next 12 months.

Only 13 per cent expect a decline.

The data from the IHS Markit/CIPS services purchasing managers’ index (PMI) scored the country at 39.5 in January.

That was better than the 38.8 that experts had predicted, but still represents a sharp contraction. Anything below 50 is considered a reduction in activity and in December the score was 49.4.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: ‘Positive news on the UK vaccine rollout pushed up business optimism to its strongest since May 2014 and this improvement contrasted with a decline in confidence reported by service providers in the euro area during January.

‘While the UK economy is on course to contract sharply during the first quarter of 2021, businesses remain confident that pent up demand and an easing of pandemic restrictions will provide a springboard to recovery later this year.’

Car dealers and industry experts have reported a growing confidence that when showrooms are allowed to reopen there will be some pent up demand to boost the market.

Audi director Steve Catlin, who heads up sales for the brand, told Car Dealer that he feels high levels of savings and low levels of debt could see ‘revenge’ buyers head back to the market.

Revenge buying is a phrase coined for customers looking to cheer themselves up with a new car.

Catlin said: ‘We are seeing a reduction in demand which is inevitable, but in a positive light there are lots of customers that we are talking to and once we are out of the restrictions – and fingers crossed that happens shortly – we’ll be in a great position to take advantage of that demand.’

  • Revenge buyers could flood back to market

Researchers found that 41 per cent of businesses that responded to the PMI survey indicated that their output had declined in January, with only 15 per cent registering an expansion.

The growth was mainly reported in the property sector, with prospective buyers rushing to get a deal over the line before the end of the stamp duty holiday on March 31, as well as the digital services and e-commerce sectors.

By early January all of the UK was in some form of lockdown, with variation between different parts of the country.

The measures have meant that non-essential retailers, including car dealers, cannot open, and have placed major restrictions on other parts of the economy.

On the January numbers, Moore added: ‘Temporary closures led to shrinking demand for business services and a ripple effect of corporate spending cutbacks.

‘As a result, total new work fell at the fastest pace since May 2020 and this setback contributed to a steeper rate of job shedding at the start of the year.’

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