While business confidence levels remain relatively high, the Winter 2018 edition of the quarterly Trade Barometer shows a dip in optimism about future prospects, growing nervousness about investment and more caution over international expansion.
Overall, some 61% of businesses are now confident they will grow over the next three years, down from 68% in the Autumn 2018 Trade Barometer. Similarly, while many businesses still intend to invest in areas such as hiring new staff, some are now scaling back their plans. It’s notable that businesses’ plans to expand overseas have flattened for the first time since Autumn 2017.
Brexit only part of the picture
The heightened anxiety partly reflects an increase in the number of businesses concerned about Brexit, with 44% now worried about the potential negative impacts, up from 43% in the autumn. And while this might have been expected to prompt businesses to do more contingency planning, the political discussions around the possible Brexit outcomes have made this more difficult; only 50% report they have contingencies in place. But there is also growing fear about the uncertain outlook for the UK economy specifically, as well as more general concern about a slowdown in the global economy. Businesses report a decline in their one, three and six month order books, with both domestic and international sales affected.
The Trade Barometer data underlines the importance of supporting businesses with practical help so they can overcome their concerns in order to capitalise on the ambition that undoubtedly remains.
Significantly, businesses with plans to expand their international activities show greater levels of optimism about their growth prospects for the next three years, but domestic businesses are now more anxious about such expansion.
Support from banks and other advisers that are able to help businesses overcome their concerns will therefore be crucial. Santander’s deep, holistic and tailored approach goes beyond providing product solutions – it helps businesses identify opportunities in markets that they are looking to enter, or have not even thought about entering. In addition, our approach doesn’t just provide assistance with the day-to-day operational requirements of trading internationally, it also helps with selecting key markets for expansion, identifying sales opportunities on the ground and forging local partnerships with third parties such as distributors.
Innovation provides a boost
Businesses that feel able to pursue their global ambitions are investing for the future. Some 44% of businesses with international aspirations in the Winter Trade Barometer have a new approach to existing technologies or their sector, up from 35% in the previous quarter. These businesses aspiring to international expansion are also more likely to be committed to spending a regular percentage of turnover on R&D; 38% of such businesses now operate this way, up from 29% in the previous quarter.
This is good news given so many businesses are lagging behind their international competitors in recent years. The increased investment in R&D and the focus on innovation will help them improve their position in the market.
Again, support will be invaluable. Santander believes it is vital to help businesses tap into an innovative and broad ecosystem that includes a network of alliance banks as well as government, trade, sector and international bodies, so they can obtain expert support in areas such as automation and the impact of the fourth industrial revolution.
Businesses will also need help tackling the anxieties of today – for example, on how they change their trading arrangements post-Brexit, and how they cope with economic volatility. Still, given the right help, the Winter Trade Barometer suggests British businesses are in a strong position – with those planning international expansion particularly well-set for further growth.
By John Carroll, Head of International & Transactional Banking, Santander UK.
Read more about the Santander Trade Barometer.