Optimism surges among UK firms but uncertainties remain – HSBC

UK firms are at a “positive inflection point” with a new government in place and amid a tech-fuelled boom but uncertainties loom large ahead of the US election and as Middle Eastern tensions escalate, according to HSBC’s commercial banking boss.

Stuart Tait, head of commercial banking at HSBC UK, said the banking giant’s latest annual capital expenditure (Capex) report reveals that “optimism is climbing and ambitions are rising to match”.

More than half of UK businesses (55%) are positive about growth in the year ahead, up 9% on last year, according to the study.

The report, which is compiled from a survey of 1,583 HSBC business customers, showed that two thirds of firms have growth ambitions, up from 64% last year, with more than a fifth (22%) looking to grow by at least 20% – the highest recorded since the report was launched four years ago.

Mr Tait said the poll – conducted at the end of July, following the UK election – showed a “bounce in optimism” and “offers many signs of a positive inflection point”.

He told the PA news agency: “Firms were just waiting for the election to be done.

“The UK had a very smooth and straightforward election and we saw a flurry of activity afterwards, with mergers and acquisitions and capex spend.

“They were just waiting for that milestone to pass.”

But Mr Tait said attentions have now turned to the upcoming Budget from new Chancellor Rachel Reeves, as well as the impending US election and the prospect of further interest rate cuts in the UK.

The current tensions in the Middle East are casting another cloud of uncertainty for businesses, with worries over what may happen to oil prices, which have already risen sharply in recent days.

“Everybody is watching that very closely,” said Mr Tait, pointing out that the recent strikes in US ports are also a possible concern among businesses.

“What matters to many businesses is the free flow of trade,” he said.

But Mr Tait said UK firms have become adept at navigating challenging situations, having endured Covid, the supply chain crisis that followed and the energy price shock after Russia invaded Ukraine.

“Some of the shocks that have come along in the past three to five years have proved that UK businesses are more resilient and able to navigate… better than we would’ve previously expected,” he said.

The report shows that technology is at the heart of UK corporate growth ambitions, with three quarters of those looking to grow significantly placing an importance on tech.

And tech firms are themselves among the most cheery over prospects, thanks largely to the boom in artificial intelligence (AI), with 70% of IT firms surveyed saying they are optimistic – far outstripping counterparts in other sectors.

It also found that 81% of tech businesses are expecting to grow this year, with more than a third (34%) looking for significant growth.

Sectors that are more cautious over the outlook are largely those with a reliance on consumer spending – which has been under pressure in recent years due to soaring costs – such as hotels and restaurants as well as high street retailers.

HSBC found that 35% of hotels and restaurants are not optimistic, followed by more than a fifth (21%) of retail and wholesale firms.

While overall there is greater optimism among UK firms, the report showed a fall in the number of companies planning to increase their spending over the next year – at a third, down from 38% last year.

HSBC said this may be down to the continuing burden of costs, though these have eased recently, as well as the perception that availability of capital has narrowed.

But it said despite this, where investment is planned, more is being allocated to expansion and growth.