A new report by S&P Global offers insights into the confidence levels of UK private sector businesses for the coming year. The second annual Global Business Outlook Survey, which covers both manufacturing and services sectors worldwide, draws from a pool of approximately 12,000 respondents. In the UK, the survey panel includes about 1,400 companies across manufacturing, services, and construction.
The report, conducted tri-annually in February, June, and October, measures key indicators such as expectations for business activity, employment, capital expenditure, prices, and profits. Using a net balance system ranging from -100 to 100, the survey gauges optimism or pessimism in the business outlook, with positive values indicating a favorable forecast.
This comprehensive study extends beyond the UK, encompassing major economies like the US, China, Japan, and several European nations, providing a global perspective on business sentiment.
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Overview
The latest report reveals strong confidence among UK companies regarding future business activity. Key points include:
A net balance of +44% of UK private sector firms predicted business expansion over the next year, the second-highest confidence level in over two years.
UK producers are at their most confident since February 2022, with a net balance of +56% in the manufacturing sector.
While service sector optimism remains strong at +42%, it has eased in June compared to earlier in the year.
Output price and staff cost expectations have dropped to their lowest in over three years, potentially easing inflationary pressures.
Investment plans have improved, buoyed by hopes of future interest rate cuts.
Profit forecasts have eased but remain stronger than 2023 levels, indicating continued financial optimism.
Drivers of optimism include product innovation, increased investment, market expansion, and expected customer demand growth.
Main concerns included sustained price pressures and uncertainty around public policy ahead of the general election.
The UK showed the highest activity expectations among the 12 countries surveyed, significantly above the global average of +28%.
In response to the findings, David Owen, Senior Economist at S&P Global Market Intelligence, said:
"UK businesses held onto hopes of a strong upturn in private sector activity over the next 12 months in June, with forecasts for output and profits remaining higher than the levels recorded throughout 2023. Lower inflation and expectations of looser monetary policy underlined confidence, although the fact that interest rates have not yet fallen made some firms hesitant about meeting revenue and investment targets
"A jump in confidence across UK manufacturing suggests the sector should provide greater strength to the domestic economy in the near term, mirroring recent PMI data showing an increase in production levels. Firms often centred optimism on increased demand from export markets as well as investment opportunities into new products and technology, leading to higher projections for profits, staff hiring, capex and R&D.
"Although lower business inflation expectations were also welcome in the June survey, these metrics were all still above their long-run averages. This suggests that despite CPI dropping to 2% in May, firms have not yet quite cleared the inflation hurdle and may enact further sizeable price hikes over the coming year to compensate for rising costs."
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Employment and Investment
Capital Expenditure
UK firms' expectations for capital expenditure rose to the highest level since February 2022 (net balance +9%).
This increase was driven by stronger revenue forecasts in manufacturing and hopes of lower borrowing rates.
Manufacturing sector saw an increase from +7% to +15%, while services remained steady at +8%.
Research & Development
R&D budget projections turned positive (+4%) for the first time in a year.
Both manufacturing and services sectors showed increased expectations, with manufacturing seeing a sharper rise.
Employment Outlook
Overall optimism about employment slightly decreased, with the net balance dropping from +24% to +19%.
A clear divergence emerged between sectors:
Manufacturing saw a sharp increase in hiring intentions (from +15% to +25%).
Services sector expectations fell to the second-lowest level since late 2020 (+18%).
Service firms frequently mentioned AI adoption as a means to boost productivity and potentially reduce costs
This summary highlights the contrasting trends in different areas of business investment and employment, particularly the divergence between manufacturing and services sectors.
Inflation and Profits
Overall Inflation Trends
UK inflation expectations continued to slow in June.
Expectations for staff costs, non-staff costs, and output prices all decreased compared to February.
Output price expectations fell to a three-year low (+39%).
Comparative Position
Despite the slowdown, UK inflation expectations remained above long-term trends.
UK had the highest inflation expectations among the 12 surveyed countries.
Sector-Specific Trends
Non-staff costs: Services firms (+48%) had higher expectations than manufacturers (+43%).
Wage expectations: Slightly higher in the manufacturing sector, with 66% of firms projecting salary increases by June 2025.
Output prices: Service sector expectations dropped to lowest since February 2021, while manufacturers reported highest expectations in over a year.
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Profit Outlook
Manufacturing: Net balance of +35% expecting earnings to rise, highest in three years.
Services: Expectations decreased but remained positive at +21%.
Overall UK profit outlook (+23%) was more than twice the global average (+11%).
Factors Influencing Expectations
Rising shipping prices due to global supply chain disruptions.
Geopolitical conflicts affecting costs.
This summary highlights the complex picture of inflation and profit expectations in the UK, showing a general slowdown in inflation expectations but with significant variations between sectors and in comparison to global trends.
Construction Outlook
Profit Expectations
Strongest outlook in over three years, with a net balance of +34% expecting a rise in profits (up from +24% in February).
Activity Projections
Robust expectations for future activity, with a net balance of +40% (slightly down from +43% in February, but above survey average).
Growth Drivers
Anticipated stronger demand, lower inflation, improved labor availability, public policy changes, and potential interest rate reductions.
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Potential Challenges
Global economic instability, geopolitical conflicts, and political uncertainty ahead of the UK general election.
Employment and Investment
Strongest employment projections in over two years (+31%).
Capital expenditure plans at a two-year high (+15%).
R&D forecasts reached a three-year high (+9%).
Cost and Price Expectations
Accelerated cost pressure expectations, with staff cost (+70%) and non-staff cost (+50%) projections at highest since October 2022.
51% net balance planning to raise output charges, highest in four survey periods.
Sector Comparison
Construction sector showed the strongest inflation metrics among the three monitored UK sectors.
This summary highlights the optimistic outlook in the construction sector, with strong expectations for profits, activity, and investment, despite anticipated cost pressures.
For access to the full report, including a global outlook, along with anecdotal evidence from survey respondents regarding opportunities, threats and expected business opportunities for the next 12 months, visit: Home | S&P Global Market Intelligence (spglobal.com)
To discuss the findings with a specialist consultant in your sector, or to explore working with our team to fill a vacancy in your team, visit our Client Services page.
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