EY ITEM Club Winter Forecast 2014
For businesses, our forecast brings an intriguing mix of implications. Most notably is the challenge of managing growth: with UK GDP growth solidly back above 2% and world trade set to rebound, companies face the unfamiliar experience of preparing for expansionary times, especially in sectors like construction and branded consumer goods.
There is a need to make the difficult decisions around the targeting and timing of investment to seize potential growth opportunities. As we move into a lower-inflation environment, companies will be able to rely less on inflation-driven revenue rises to justify investments, and will need to be very clear on where their revenue growth is coming from and how they will create value. This will require precise targeting and analysis.
With growth and confidence rising and corporations sitting on piles of cash, the stage is set for a resurgence in M&A. Businesses that fail to respond with positive action may find they get acquired – and end up with someone else taking the action for them.
There will be other challenges in the medium term not least around human capital. With wages being held down by an expanding labour supply, companies need to revisit their recruitment and succession strategies. Will there be a war for high-value talent? And with delayed retirement, how will businesses reward and promote ambitious younger staff?
Mark Gregory, EY Chief Economist