Drawing on data from the IBR, the EIU and the IMF this short report considers the outlook for the UK economy, including the expectations of 500 businesses interviewed in the UK, and more than 12,500 globally, over the past 12 months.

1. Focus on: UK
Grant Thornton International Business Report 2013

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and funds,
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Focus on: UK
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more than
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The UK is an advanced economyin financial services
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2012
than 63 million people. In 2012, its GDP
was approximately £1.6 trillion (US$2.5 trillion),
global accountancy
making it the sixth largest economy in the world.
uA
in Q2 2013
Drawing on data sources such as the
in Q2 2013 Providing services for
asset
Economist Intelligence Unit (EIU), the managers,
fund administrators,
International Monetary Fund (IMF) and the
hedge funds,
Grant Thornton International Businesspurpose vehicles
special Report
(IBR), this short report considersand mutual funds
the outlook for
the economy, including the expectations of 500
businesses interviewed in the UK, and more
than 12,500 globally, over the past 12 months.
ow
Economy
Scott Barnes
CEO
Grant Thornton UK LLP
T +44 (0)20 7728 2428
E scott.c.barnes@uk.gt.com
www.grant-thornton.co.uk
expanded by
0.7%
in Q2 2013
’
6th
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as recognised
largest
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by Wall Street
largest
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Focus on: UK 2
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Focus on: UK
fund administrators,
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as recognis
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special purpose vehicles
and mutual funds
Economy
Economy
expanded by
The UK economy appears to have turned a corner in recent months.
Austerity measures introduced in 2010 to rein in a budget deficit which
had climbed above 12% have weighed on growth, with many businesses
and consumers joining the government in deleveraging.
13.7%
However, stronger growth in the first
half of this year led forecasts to be
revised upwards although the economy
still remains around 2.5% smaller than
its 2008 peak. The eurozone and the
US remain key export markets but
10.7%
growth in demand for British goods
and services is being driven outside
of Europe54.6%
by economies such as 8.2%
China and South Korea.
• the economy expanded by 0.8% in
Q3, up from 0.7% in Q2 - a rise of
1.5% year-on-year
• the third quarter improvement was
driven by 0.7% growth in the services
sector, which accounts for around 80%
of UK GDP, whilst the construction
sector expanded by 2.5%
• industrial production rose by
0.6% between the second and third
quarters, driven by 0.9% surge in
manufacturing activity
5.8%
the top 6
revenues of
$300m
7.3%
12.9%
54.6%
58.9%
7.7%
5.5%
5.8%
7.7%
the top 6
Providing services for
US
Germany
Netherlands
58.9%
France
Ireland
Other
10.7%
8.2%
7.0%
Ranked in
the
Australia top 6
top clien
operate in financial ser
1.4%
12.9%
2013 forecast
7.7%
GDP growth
5.5%
6.1%
7.7%
forecast growth
in 2014
Australia
remains a key
trade partner
1.4%
1.4%
revenues of
$300m One of the 6.1%
6.1%
One of the
Ranked in Australia
‘large six’ ONS 2013
Source:
the top global accountancy a key for
6 remains services
Providing
Ranked in organisations managers,
in major markets
Australia
asset
trade partner
2012
5.8%
of our member fi
in Q2 2013
• the seasonally adjusted trade
Import origins (2012)
deficit stood at £3.3 billion
(US$5.3 billion) in September, with
in major markets
7.3%
a goods deficit of £9.8 billion partly remains a key
13.7%
offset by inservices surplus of £6.5 trade partner
a major markets
12.9%
billion; the trade deficit widened from
7.3%
10.7%
13.7%
Combined global
£5.5 billion in Q2 to £9.7 billion in Q3
7.7%
12.9%
• house prices increased by 3.8% in the
Combined globalin the 8.2%
10.7%
54.6%
year to August, up from 3.3%
58.9%
5.5%
year to July
7.7%
7.0%
7.7%
• the unemployment rate stood at 7.7%
8.2%
54.6%
58.9%
in financial5.5%
services
5.8%
in Q3, with the number of unemployed
2012
falling by 18,000 to 2.49 million.
7.0%
7.7%
in financial services
Ranked in
60%
7.3%
13.7%
7.0%
Key Indicators
0.7%
Export destinations (2012)
Over
as recognised administrators,
fund
remains a key
asset managers,
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by Wall Street
in major markets
trade partner purpose vehicles
fund administrators,
special
Combined
hedge funds, global
and mutual funds
US
Germany
Netherlands
France
China
Other
2013 forecast
GDP growth
2013 forecast
GDP growth
forecast growth
in 2014
forecast growth
‘large six’ in 2014
global accountancy
organisations
as recognised
by Wall Street
Focus on: UK 3
Over

4. 54.6%
Ranked in
5.8%
10.7%
8.2%
7.0%
6.1%
forecast growth
in 2014
58.9%
83
Australia
89
85
62
France
Source: IMF (2013)
Germany
7.7%
48
5.5%
50
12.9%
56
50
7.7%
UK
2008
2013 forecast
Focus on: UK 4
GDP growth
6.1%
2018
1.4%
2013
forecast growth
in 2014
organisations
the top 6
87
remains a key
trade partner
global accountancy
in major markets
Over
Combined global
and mutual funds
‘large six’
revenues of
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hedge funds,
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as recognised
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by Wall Street
One of the
fund administrators,services
in financial
2012
in financial services
organisations
revenues of
$300m
General government net debt (% GDP)
63 million
‘large six’
Combined global
people
GDP
£1.6
trillion
6th
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in major markets
globally
the top
$300m 6 remains a key
trade partner
One of the
1.4%
GDP growth
‘large six’
Australia
2012
revenues of in
Ranked
decline over the next few years, although
7.7%
not as quickly as forecast at the beginning
of the present parliament, suggesting the
government’s fiscal austerity programme
has some way to run. The deficit is
expected to fall to 7.6% in 2013 and
again to 6.4% in 2014, reaching 5.1%
in 2017 but still well above the EU target
of 3%. And public debt continues to
rise, climbing to 85% of GDP in 2013
and 88% in 2014, before peaking at
91% in 2016.
The labour market remains complex.
Real wages remain around 9% below
2008 levels but private sector employment
has actually risen over the same period,
accountancy
suggesting that productivity has declined.
Whether existing workers, and those
expected to move into jobs as the
unemployment rate falls from 7.7%
in 2013 to 7.3% in 2014, can be used
more effectively, will shape the UK’s
growth trajectory.
global accountancy
Combined global
5.5%
forecast growth
in 2014
more than
which accounts for more than 40% of
7.0%
exports, provides further encouragement
although UK businesses have diversified
5.8%
away from traditional markets due to
regional stagnation in recent years.
Exports are expected to climb by 2.0%
in 2013, accelerating to 4.3% in 2014.
Investment fell by more than 14.0% in
2009 and is not expected to pass its 2008
level until 2016, despite increases of 1.1%
and 2.5% in 2013 and 2014 respectively.
Interest services
in financial rates are likely to remain at
record lows for some time with new
2012
Bank of England governor, Mark Carney,
indicating that a rise in the base rate will
not be considered until unemployment
falls to 7% as part of his policy ofglobal
‘forward
guidance’. A sharp rise in inflation might
see the BoE change its approach but price
rises are expected to average 2.7% in the
Providing services for above the
short to medium-term, albeit
target rate of 2%.
58.9%
Providing services for
8.2%
6.1%
2013 forecast
organisations
as recognised
by Wall Street
54.6%
fund administrators,
remains a key
in major markets
trade The budget deficit is expected to
partner
The end of recession in the eurozone,
Over
of our member firms’
top clients
the top 6
Australia
operate in financial services
Ranked in
60%
7.3%
Growth forecasts for the UK have been revised upwards following a
13.7%
raft of positive data. The economy is now expected to expand by 1.4%
in 2013, rising to 1.8% in 2014. Despite fears that rising house prices 12.9%
could lead to another credit10.7%
bubble, there are encouraging signs that
the economy is starting to rebalance away from consumption,
7.7%
with investment and exports playing a greater role.
asset managers,
7.7%
hedge funds,
5.8%
Economic outlook
5.5%
special purpose vehicles
in Q2 2013
7.0%
7.7%
and mutual funds
58.9%
Economy
8.2%
expanded by
Focus on: UK
0.7%
.6%
GDP growth
10.7%

5. Focus on: UK
Business growth prospects
Following the dramatic rise seen in Q2, business optimism in the outlook for the UK
economy jumped again in Q3 following eight straight previous quarters stuck below
zero (ie net pessimism). The net 76% figure is an IBR record-high for the UK and makes
the business community the third most optimistic in the 45-economy survey. Business
leaders in the UK are now more optimistic than peers in Germany (51%), Sweden (48%)
and France (-17%), although all showed improvements over the past three months.
As confident executives are more likely to take risks and invest, it follows that UK
business leaders are also increasingly bullish about the growth of their own operations.
In 2013, on average net 49% of UK businesses expect to increase profitability, up from
just 29% in 2011. Peers in Sweden (40%), Germany (30%) and France (19%) are far less
optimistic. The UK figure is still some way below pre-crisis levels but continues a steady
improvement over the last couple of years. The same is true as far as job creation is
concerned: net 31% of UK businesses expect to expand their workforces in 2013, down
from 37% in 2008, but up on the 18% recorded in 2011 and ahead of German (15%),
Swedish (14%) and French (6%) peers.
Net percentage of businesses optimistic for the
economic outlook (next 12 months)
Net percentage of businesses expecting to
see profits rise (next 12 months)
80%
UK
70%
80%
70%
60%
Germany
Sweden
50%
60%
Shortage of
finance affecting
15%
50%
UK
30%
40%
Sweden
20%
30%
Germany
10%
20%
40%
0%
10%
-10%
France
-20%
0%
-10%
-30%
of UK
businesses
France
-20%
-40%
-30%
-50%
Q4
2011
Q1
2012
Q2
2012
Source: Grant Thornton IBR 2013
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q2
2013
2007
2008
2009
2010
2011
2012
2013
Source: Grant Thornton IBR 2013
23%
Focus on: UK 5

6. Focus on: UK
Growth constaints
A lack of demand shot to the top of
UK business leaders’ concerns during
the financial crisis, peaking at 44% in
2009, albeit slightly lower than peers in
France, Germany and Sweden. Since
then there has been a gradual easing of
demand conditions, with 24% of UK
businesses citing a shortage of orders as
a growth constraint in 2013, level with
peers in Sweden. A lack of demand is still
more of a concern for UK businesses than
their German counterparts, but business
leaders in Germany have seen the issue
rise over the past 24 months, after an
initial steep decline in 2010 following
the financial crisis.
The issue of finance has been in the
headlines with the government pushing
schemes such as ‘Funding for lending’.
The IBR results suggest that access to
finance is far from the biggest concern
businesses are facing; indeed just 15%
of UK business leaders expect a shortage
of finance to constrain their ability to
grow their business over the next 12
months. This is only marginally above
levels seen in 2007-8 (11%).
Before the crisis, a lack of skilled
workers was a drag on expansion plans
for around a third of UK businesses. This
has fallen to less than a fifth today, around
half the level in Germany which has much
lower unemployment.
Shortage of
finance affecting
Percentage of businesses citing demand
as a constraint on their growth plans
49%
Sweden
44%
24%
24%
UK
15%
51%
of UK
businesses
58%
France
38%
70%
58%
Spain
49%
18%
Germany
54%
Italy
23%
of UK
businesses
expect to increase
exports
Source: Grant Thornton IBR 2013
2009
2013
Focus on: UK 6

7. Focus on: UK
Rebalancing the UK economy
Net percentage of businesses expecting to increase investment
in plant and machinery (next 12 months)
Commentators and politicians have stressed the need for the UK
to rebalance its economy away from consumption, towards exports
and investment – interestingly, the exact opposite of what the new
leadership in China is trying to do.
The view from business leaders in this
regard is positive. Net 40% expect to
increase investment over the next 12
months, which continues a steady rise
from 2009 to bring expectations back
to parity with pre-crisis levels. Even
German (37%) business leaders are
less optimistic in this regard.
The proportion of UK businesses
expecting to increase exports has actually
risen past pre-crisis levels indicating
that they have been able to expand their
horizons beyond the troubled eurozone.
Net 23% of UK business leaders expect
to increase exports over the next 12
months, up from 15% in 2008. Businesses
in Germany (21%), France (15%) and
Sweden (10%) are less hopeful.
However, the UK has some way to go
before it can compete with the German
export machine, which ran the largest
absolute trade surplus in the world in
2012. Tellingly, Germany tripled the
proportion of exports going to the BRIC
economies between 2000 and 2012 to
11.7%, a figure forecast to more than
double by the end of this decade. By
contrast just 5.6% of UK exports went
to the BRICs in 2012, although this
was up from 3.3% in 2007.
51
37
43
40
37
Shortage of
There is also room for improvement
32
23
finance affecting
in terms of international presence. Just
17
29% of UK businesses have operations
abroad, lower than rates in Germany
(46%), France (35%) and Sweden (33%).
More encouragingly,
2008
2008
2013
2008 2013 2008 2013
2013
the proportion planning new or further
international expansion was higher than
France and Sweden, with traditional
markets such as Western Europe (57%)
Shortage of Net percentage of businesses expecting to see exports rise (next 12 months)
and North America (43%) joined by affecting
finance
Shortage of
emerging ones, such as China (37%),
finance affecting 2008
15
the Middle East (32%) and India (30%),
high on the list of targeted destinations.
2013
23
15%
of UK
businesses
UK
Germany
Sweden
France
15%
15%
of UK
23%
of UK
businesses
expect to increase
exports
businesses
of UK
businesses
41
2008
21
2013
30
2008
23%
23%
2013
businesses
expect to increase
2013
of UK
of UK
businesses
exports
exports
10
24
2008
15
expect to increase
UK
Germany
Sweden
France
Source: Grant Thornton IBR 2013
Focus on: UK 7

8. IBR 2013 methodology
The Grant Thornton International Business Report (IBR) is a quarterly survey of approximately 3,300
senior executives in listed and privately-held businesses all over the world. Launched in 1992 in nine
European countries, the report now interviews more than 12,500 business leaders in 45 economies on
an annual basis, providing insights on the economic and commercial issues affecting companies globally.
The data in this report are drawn from interviews with chief executive officers, managing directors,
chairmen and other senior decision-makers from all industry sectors. Q3 data is drawn from 3,300
interviews (125 in the UK; 100 in Germany; 150 in Sweden; 75 in France) conducted in September 2013.
2013 data is drawn from over 12,500 interviews (500 in the UK, 400 in Germany, 600 in Sweden; 300 in
France) conducted between November 2012 and September 2013.
To find out more about IBR, please visit: www.internationalbusinessreport.com.
Dominic King
Grant Thornton International Ltd
Global research manager
T +44 (0)207 391 9537
E dominic.king@gti.gt.com
Wendy Watherston
Grant Thornton UK LLP
Head of PR
T +44 (0)20 7728 2309
E wendy.watherston@uk.gt.com
© 2013 Grant Thornton International Ltd.
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