Confidence to grow: The UK economic outlook in 2015

The British economy has officially turned a corner, which is good news for businesses of all sizes. According to the European Commission, the economy in the UK is forecast to grow by 2.4 per cent in 2015. This view is backed up by Britain’s leading business lobby group, the British Chambers of Commerce (BCC), which forecasts growth next year of 2.5 per cent.

Infographic: the UK’s road to recovery

Economic growth may have slowed slightly in the three months to August this year, but expectations for the next quarter and the year ahead remain very strong, the BCC says.

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In 2015, many predict that the economy will start to accelerate due to an expansion in manufacturing, energy and construction.

Tony Walsh, Co-Head of UK, Barclays, says that businesses of all sizes are growing in confidence. "The average person has more money in his pocket and that is benefitting businesses of all sizes. Construction is booming, manufacturing is growing very swiftly and the leisure industry is now picking up."

According to The Guardian, "Biotechnology, nanotechnology, 3D printing and the next stage of the computer revolution, as well as a rise in the economically active population" are the reasons for economists' strong forecast. Even more encouraging is the view shared by many economists that British firms may actually be able to expand using their existing staff rather than making new hires.

So how can entrepreneurs and businesses small, medium and large take advantage of the positive outlook?

Entrepreneurs

The growth of entrepreneurship is being witnessed around the UK in many "Silicon" places (London's "Roundabout", Cambridge's "Fen", Manchester's "SpacePortX", and Bristol's "Gorge") and elsewhere. So how can you best take advantage of the opportunities on offer?

In the first half of 2014, investors put $1bn into UK-based start-ups, according to TechCrunch’s data arm, CrunchBase. The UK government is also doing its best to support entrepreneurs, with innovation-friendly start-up visas, tax breaks for angel investment, reform to the UK's intellectual property regime, and the addition of Entrepreneur’s Relief.

The UK's technology hubs, and specifically London's Tech City, have long acted as a "bridge" both for US tech companies who hope to move into Europe, and also for European companies hoping to expand into the US, City AM's Mike Butcher notes. The upshot is that Silicon places around the UK offer a range of great new opportunities for entrepreneurs.

While it is true that the overall movement of the economy doesn’t necessarily tend to affect entrepreneurs directly - given that innovators will always innovate - start-ups always need cash. And investors are presently being helped by the Seed Investment Enterprise Scheme (SEIS), which provides tax relief for investors, enabling entrepreneurs to raise up to £100,000.

This has meant more people becoming angel investors who hadn’t considered doing so before, and consequently more financing options for UK-based start-ups and home-grown entrepreneurs.

SMEs

Small and medium sized businesses are a key part of the British economy. Lord Livingston, the Minister for Trade and Investment, recently said that small and mid-sized businesses "have the potential to be economic powerhouses for the UK economy, creating jobs and growth for all regions of the UK." But, he added, their success is dependent on expanding beyond domestic markets.

Barclays' John Winter agrees. "On average, as of March this year, 25 per cent of EU SMEs are involved in exports, whereas in the UK that figure was only 20 per cent". So how can you expand beyond domestic trade?

SMEs can work closely with UKTI to explore new markets – UKTI is well placed to provide the support that SMEs need and there are a plethora of events organised by banks, advisers and media partners giving free advice and guidance from experts, including businesses that have already taken the plunge to trade overseas.

Many UK banks, including Barclays, offer skill seminars for first-time or occasional exporters to help them establish regular trading routes to new markets. Banks can also offer access to trade corridors through networks of proprietary and correspondent banking presences in multiple countries.

For Walsh, there are three main opportunities for SMEs as they move towards 2015. "The first is the increased availability of finance; there is now more access than there has ever been before - banks are lending to quality propositions, and schemes such as the Business Growth Fund also present excellent opportunities. Second, the 'digital revolution' makes it easier for small companies to become more competitive, reach new markets, and make and receive payments. Finally, 'Brand Britain' commands a considerably higher premium when sold abroad, so trading on UK credentials can be a huge advantage for SMEs."

Big business

The appetite for risk among the UK's largest corporates reached a seven-year high in the third quarter of 2014, according Deloitte's latest CFO survey.

Chief financial officers around the country have "shrugged off" rising uncertainty and the lethargy of the Eurozone, Deloitte found.

This desire to take new risks is being supported by positive growth within the UK, the recovery of the US economy and ample liquidity.

But it is not all positive news. The Deloitte survey indicates that CFOs' perceptions of economic and financial uncertainty rose in the third quarter for the first time in two years. Looking forward they now see the central risk to their businesses coming not from economic or financial turbulence, but rising political uncertainty.

Consequently, the directors of many global corporations will likely be paying particularly close attention to political developments in 2015 as the UK goes to the polls in the next general election. As Walsh says, "the UK election, regardless of the outcome, will be a huge factor for UK focused corporates".

For Walsh, though, it is not just domestic politics that global corporations will need to consider in 2015, but events in Europe and around the globe. "Europe is our closest and largest trading partner and continued slow growth will be a drag on our own growth aspirations. Geopolitical events will, of course, be a factor but it is difficult to define just how much. Most corporates and markets prefer stability, however, and therefore unrest is likely to be negative for the global outlook."

In spite of the political uncertainties ahead, optimism among big corporates for 2015 remains high, with expectations for corporate revenues and margins close to the four-year high reached earlier this year.

Financial possibilities

Regardless of how world events unfold, help will be at hand in 2015 for businesses of all sizes. Ian Tetsill, a Regional Head of Debt Finance at Barclays, says that "there are now many alternative sources of lending. These aren’t all necessarily competitors to banks, but complementary partners to support clients at different stages of their growth".

Tetsill says that demand for borrowing in the UK is currently on the rise. "It is a good time to borrow because the availability of credit is increasing, and the overall cost of borrowing is lower than it has been for many decades."

He adds: "People are generally feeling more confident and over the last six months, risk appetite has increased. There is more desire to expand, make acquisitions, and hire more staff. Our clients generally are becoming bolder and making more strategic decisions about growth".

With so many options for finance available and the forecasts for UK economic growth looking more favourable, there is every reason why companies of all sizes should be feeling confident about the challenges ahead. Expansion and growth are important aspects of all business, so as you plan confidently towards 2015, now may be the time to consider how you may take that next small step... or indeed that next giant leap.

Financing options

A broad range of financing options are currently available, including:

• Business loans: Business loans allow you to borrow cash over a set period and repay it with interest in agreed instalments. Such loans are particularly useful for working capital or to support your medium and long-term business plans.

• Cashflow finance: This type of finance allows businesses to borrow against the value of their unpaid invoices. This effectively allows businesses to use their growth to support yet more growth.

• The EFG scheme: Loans of between £1,000 and £1 million are available through the scheme to businesses with a turnover of up to £25 million. The loans are useful for those who have a strong business idea or project, but are finding it difficult to get a loan agreed because of insufficient security.

• Business grants: A number of grants are available under the Government Solutions for Business scheme, which are generally linked to specific activities, such as research and development. One of the main advantages of this kind of finance is that government grants don’t have to be repaid, so ultimately come as a gift rather than as a loan. However, there are very strict standards that must be met before your business will become eligible for them.

• Grants are also available from the Business Growth Fund (BGF) – an independent investment company with £2.5 billion to invest in growing smaller and medium sized UK businesses that is funded by five of the UK’s main banking groups.

• Equity: Offering a percentage of your business can be a good way to raise cash, and as opposed to government loans, you won’t ever have to pay the money back. “Angel investors” and venture capitalists can drive a hard bargain and may look to make a profit swiftly before selling their equity on.