EY ITEM Club Summer forecast

Business implications

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With the EY ITEM Club saying the UK labour market is giving ‘the best of both worlds’ through rising employment and low wage inflation, there is no question that outlook for the UK economy looks increasingly positive. Just twelve months ago, today’s mix of relatively robust growth, low inflationary pressures, and tangible progress towards economic rebalancing would have seemed like a pipe-dream.

Well, it has come about – and businesses need to respond proactively and at pace, or risk missing out. The first step is already happening, with business investment rebounding by 10% year-on-year in the first quarter, as executives and the financial markets start to recognise the UK economy’s burgeoning potential.

But that’s just the start. To capture their share of the upturn, we believe businesses should now take five steps:

  • Evaluate the sectors, segments and geographies you operate in: different areas of the economy will develop in different ways – witness the growth of discount retailers- calibrate your plans accordingly.
  • Spend time working out what higher business investment will mean: do you need to respond to match your competitors, or will your customers or suppliers be investing?
  • Examine the potential to move back up the value chain: a strong UK recovery could create long-term opportunities to substitute domestic production for imports.
  • Reconsider M&A: while volumes are still lower, deal values are returning to pre-crisis levels, and corporates are increasingly willing to consider strategically important deals.
  • Remember that the government austerity drive continues – so ideas to transform the efficiency of public service delivery will remain important.
  • Momentum could build quickly with all the indicators moving into positive territory. Businesses need to ensure they are the ones seizing opportunities rather than playing catch-up.

Mark Gregory, EY Chief Economist