Andy jalil - andyjalil@aol.com - Despite political and economic uncertainty with on-going Brexit negotiations, UK businesses are poised to launch a buying spree on a scale not seen for almost a decade, buoyed by forecasts of rising profits. Some 60 per cent of British firms surveyed by accountants Earnest Young (EY) are planning acquisitions in the course of 2018, a nine percentage point rise since April.
Strong cross-border deal-making was seen as the main driver of merger and acquisition (M&A) activity by 29 per cent of the 3,000 top executives polled by EY worldwide. The UK is set to retain its position as the third most popular destination for inbound M&A deals worldwide. M&A activity held up in the aftermath of the EU referendum, aided by the fall in the value of sterling, which has made British assets more attractive to overseas buyers.
The planned flurry of deal making shows the “attractiveness of the UK’s open economy” as well as the depth of valuable intellectual property held by firms, said Steve Ivermee, managing partner of EY’s transaction advisory service. The confidence shown by executives reflects a belief that firms will be able to whether the “maelstrom of change” facing the nation, Ivermee added.
EY’s findings are corroborated by a confidence measure from the Institute of Chartered Accountants (ICAEW), which found that firms expect a profit pick-up next year, in a separate survey of more than 1,000 UK businesses. Firms expect profit to grow by 4.7 per cent next year as sales rise and input price inflation eases back.
The survey also found signs that export sales are picking up, driven by strength in production. Meanwhile, businesses expect domestic sales will expand by four per cent in the year ahead, a pace not seen for two years. However, the upbeat assessment is not universal and some economists and City (financial district) analysts warn that UK firms are not out of the woods yet.
Accountants firm BDO has warned that of a lingering risk that a slowdown in economic growth remains possible. An index collating major business surveys from the Bank of England, the Confederation of Business Industry (CBI) and IHS Markit’s purchasing managers’ index (PMI) showed output growth falling to a 21-month low.
The services sector, the main engine of the UK economy, dipped to a reading of 99.24 on BDO’s output index, below the 100 long-term trend benchmark. The analysis comes as the CBI warns that uncertainty is holding back investment, with more than half of UK businesses saying that economic outlook is a concern, according to a poll carried out by the lobby group. Meanwhile, 39 per cent of companies named the Brexit process as a key concern.
London business growth hit a six-month high last month, Lloyds Bank’s regional PMI showed. The London PMI stood at 56.3 — a reading above 50 signifies growth in business activities — and was the fastest rate of growth registered in the last eight months. Strong business growth in the capital boosted private sector employment. Paul Evans, of Lloyds Bank commercial banking said: “As we enter the closing stages of 2017, London businesses have seen activity gain new momentum.”
Companies continued to flock to the capital city last month, leasing a staggering 1 million sq ft of new office space, according to figures — boosted by the highest take-up in financial district since 2004.
Data from property giant CBRE showed the amount of office space leased in central London rose 36 per cent in November compared with the month before. Business services was the biggest occupier, making up a third of the new take-up, while banking and finance made up 24 per cent.
However, research also showed availability in the capital fell to 14.3m sq ft, four per cent lower than the 10-year average. “November has been a record month in terms of take-up, demonstrating the resilience of London and its continued allure across multiple sector,” said Emma Crawford from CBRE.
The bad news for occupiers is that it may become increasingly difficult to find space in the financial district. Deloitte’s London Crane Survey showed development activity in the City had fallen 11 per cent in 2017, with just eight new schemes starting during the six months to September. However, that followed the highest number of completions in the capital since the turn of the century.
(The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
Oman Observer is now on the WhatsApp channel. Click here
