UK economic outlook: Moving from shaky ground to stability and growth
Few would argue that UK businesses have had an easy time the last few years. Between the pandemic, cost-of-living crisis, and rising inflation, many had predicted an upcoming recession for the UK economy.
Whilst we may have avoided a sharp economic downturn, there is no denying that businesses in the UK are still very much on rocky ground.
Rising costs across all aspects of the supply chain are continuing to send shockwaves across industries, testing even our most seasoned CEOs and executive teams. For some, this is a focus merely on survival, for others it is how to make the best use of this window of time to come out stronger. In our conversations with clients, we consistently face the same questions: What is new thinking required to really step change performance when the low-hanging fruit is gone? Where should we be investing to manage the short term yet also build strength for the long term?
As part of a survey BCG’s Centre for Growth conducted in February of over 1500 UK businesses, we developed a resilience index and compared this against firms’ perceptions of their own position. To make it through this economic climate companies need to be strong across five pillars of resilience: financial; operational; organisational flexibility; marketing, sales and pricing; and technology. Each are needed in equal measure – this is much more than simply having cash reserves to last the coming months.
Somewhat worryingly, many didn’t see their own vulnerabilities: around 40% of those we ranked as most vulnerable thought they had higher levels of resilience. This was a trend we saw from start-ups to established companies.
The answer to creating a resilient company is never the same from firm to firm, but we see a variety of strategies at play: from cost-mitigation to cost-effectiveness to re-investment for growth. It is difficult now for many UK business leaders to focus strictly on the latter, rather the task is to unlock funding within the existing business and to do more with less.
So why should business leaders be optimistic for the road ahead?
Well, for one thing, they should be comforted that their peers are feeling assured. Our conversations with business leaders countrywide revealed that 61% are expecting economic growth to be somewhat or significantly better by 2025. This challenges the economic narrative that we are stuck in long-term economic malaise and should provide confidence that we can return to solid growth rates.
We know that having a clear people advantage to attract, retain, and develop talent is a crucial driver of future success. Our data shows that over three-quarters (77%) of senior leaders are expecting their staff headcount to stay the same or grow over the next 12 months, well exceeding those who expect it to reduce. Part of this is attributed to the difficulties many employers faced coming out of the pandemic when filling vacancies amidst a globally tight labour market was a struggle.
London businesses in particular can feel especially positive about the pull our city has to attracting global talent. Our city topped the charts in BCG’s recent 2023 Cities of Choice research, taking the title of the first-choice megacity for economic opportunities based on survey data from 50,000 people worldwide. It is telling that in February, despite today’s economic climate, London saw another monthly increase in payrolled employees, up by 98,000 on the revised January 2023 figures. I see this as an affirmation of what many of us know to be true of our dynamic and innovative capital.
Ultimately, whilst the next few years will have their fair share of challenges at an individual company level and for our economy as a whole, I’m confident that there is still a lot to be hopeful about. Particularly we can see the UK’s economic recovery playing to our strengths in terms of talent, openness, and innovation. We cannot fool ourselves that this will happen overnight, but it should provide much-needed optimism for UK businesses in the years to come.