The UK business community’s optimism of a dramatic rebound of the economy is a welcoming sign against the backdrop of overwhelming pessimism that the UK has to pay a greater price for its difficult and costly divorce from the EU, its largest trading partner.
Apart from external trade, one of the principal sources of demand, obviously, is spending. The current optimism is led by summer spending spree as Britons will commence a multibillion-pound summer spending frenzy after being freed from lockdown.
According to three separate studies, on the day that non-essential shops and other businesses in England reopened for the first time since January, suggest that the bounceback in the economy could be broader and quicker than previously expected.
As expected, small, medium and larger FTSE companies all reported improved sentiment, sans exporters, who have been badly affected by Brexit as well as coronavirus-induced constrictions that robbed them of their fortunes.
Summer spending spree
The study by the Centre for Economic and Business Research (CEBR) has forecasted that savers will unlock more than a quarter of £192bn in lockdown rainy-day funds this year, boosting consumer spending by £50bn.
Around £314m is expected to be spent in the newly reopened hospitality sector in this week alone, it said, while figures from the Post Office indicates that the Britons withdrew £590m in cash in March, the highest monthly figure in withdrawals since September.
Deloitte’s survey of bosses at some of the UK’s biggest public companies established the fact that the potential spending boom was helping to fuel record levels of optimism among chief financial officers in charge of companies’ purse strings. Respondents said they now anticipated a “strong recovery in profits over the next 12 months, with profit expectations back to the previous high seen in mid-2014 at the top of the economic cycle”.
Hiring spree next year
According to the surveys, forecasts for hiring and investment at the firms, accounting for about 22% of the value of London-listed companies, are at their highest levels in nearly six years. The accounting company BDO backed the assessment claims, confirming the fact that its jobs market tracker had reached a three-month high.
At the same time, the Federation of Small Businesses (FSB) said it had found the greatest level of optimism among its members since 2014.
Just over half (58%) of the 1,700 companies questioned anticipate that their performance would improve this quarter, while 31% expect it to worsen. The FSB’s small business index has reached to +27.3 for the first quarter of 2021, a marked improvement on the -49.3 score at the end of last year.
Data published by NatWest indicated that business activity shot up in 11 of 12 UK regions over the last three months. Growth was led by the east of England, which reported a record high, ahead of the West Midlands, and Yorkshire & Humber, while Northern Ireland was the only region to record a decline.
The surveys’ results will be welcomed by Andy Haldane, the Bank of England’s chief economist, who astonished many in February when he declared that the UK economy was like a “coiled spring” ready to explode if conditions were right.
Last week the FTSE 250 index rose above its pre-pandemic level of 22,000, although the FTSE 100 is still lagging behind its March 2020 high, though not by much.
What most of the pessimists and self-proclaimed pundits, conveniently forget is the fact that despite widespread pessimism and doomsday scenarios following the Brexit, the fundamentals of UK’s economy are sound as a “coiled spring” and bounce back with vigor once the right conditions regain.
