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One of the most critical factors in boosting the poor performance of the UK economy is increased business investment which, by focusing on areas such as expanding operations, adopting new technologies, and engaging in research and development enhances productivity, competitiveness and innovation.
Last week, HSBC Bank released a survey of 500 UK businesses which examined their capital expenditure (capex) intentions as well as their strategic priorities during a very challenging global and national economic environment.
The good news is that nearly twice as many businesses are optimistic than those feeling pessimistic. Such a positive outlook is underpinned by the anticipation of steady growth for over half of the companies, while 14% have set their sights on significant expansion suggesting a willingness by some to take calculated risks and tap into untapped potential.
Despite difficult trade conditions, the survey shows that businesses in the UK are demonstrating resilience and a strong determination to seize new opportunities. Expansion into new markets has become a focal point for 37% of businesses this year, with an even higher proportion (65%) among high-growth companies. Less than one in ten are reducing their spending in this area indicating a growing appetite by firms for global trade beyond the UK and Europe.
Investment into sustainability and research and development (R&D) is increasing although there is less spending on machinery, equipment and land and premises. This is probably due to a combination of pent-up demand being satisfied after the slowdown during the Covid pandemic over the last three years and a re-evaluation of real estate needs following the trend for changing work patterns such as hybrid models.
Following recent announcements by the Chancellor in March’s budget, there was concern amongst business owners that the corporation tax increase could put the brakes on company spending. However, the 100% first-year relief on qualifying plant and machinery investments also announced at the time has led to increased investment plans by 41% of all businesses, with two thirds of manufacturers planning to take advantage of it.
However, the one continuous black cloud on the horizon for the UK’s economic recovery remains the availability of skilled workers.
Whilst the study suggests that staff shortages have slightly improved over the past year, those businesses pursuing significant growth continue to face challenges in developing the right workforce with employee skills being a top priority for 83% of firms with significant growth plans.
Not surprisingly, businesses believe that Brexit has worsened the vacancy situation in a number of key areas, but they also criticise the education system for failing to produce individuals with the required skills for various roles. Indeed, they are of the opinion that the impending skills deficit – particularly in digital, leadership, communication, and training skills – poses a significant concern for the UK’s economic future.
As noted in last week’s column, businesses are leveraging technology and automation to improve productivity, with nearly a third of respondents viewing this as a strategic priority for dealing with skill shortages. Manufacturing and high-growth businesses are especially inclined to use technology to replace tasks that can normally be done by employees which suggest that an increasing number of businesses will need to upskill or retrain to stay competitive.
Two thirds of businesses indicate that a focus on sustainability has boosted their reputations with customers, although what is of interest is that this seems to be becoming the norm rather than exception with many firms having already adopted and implemented sustainability practices.
However, the current cost of living crisis may be influencing further investment in this area with six out of ten of businesses being worried about the impact of costs on their business. As a result, some are finding it increasingly challenging to realise the benefits of investing in sustainable development.
Although 35% of businesses plan to increase capex spending in sustainability initiatives, only 41% believe such investments help reduce costs, with nearly half of firms worried about the time it takes for such investment to realise financial returns in a challenging environment. The exception seems to be in terms of investment plans related to efforts to electrify fleets with half of all businesses now focusing on vehicles as part of their sustainability agenda.
Therefore, the HSBC study shows that, despite worries about an impending recession due to high interest rates and stubborn inflation, the UK business environment remains dynamic, with trade challenges being met with determination to explore new opportunities. While businesses are actively pursuing global expansion, they are also adapting to increased costs and re-evaluating spending priorities.
More importantly, by capitalising on government incentives, improving workforce skills, embracing technology, and persisting in sustainability efforts, UK businesses are positioning themselves for future success in a challenging economic landscape.
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