Understanding the business environment

Understanding the business environment

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These days, there’s always something in the news about the economy. Frequently it tends to be dominated by the uncertainty around Brexit.  But what are the underlying trends and what should we make of it all?  With this in mind, we have pulled together a few key statistics and commentaries to provide a balanced overview.

Consumer confidence

UK consumer confidence fell by three percentage points in the second quarter of 2017, the biggest quarterly decline in more than two years, according to the latest Consumer Tracker report from Deloitte.

The quarterly survey of 3,000 UK consumers, carried out in June, saw overall consumer confidence fall to -10% in Q2 2017, down from -7% the previous quarter. Moreover, confidence has now fallen for three consecutive quarters.  This fall was driven by a quarterly drop in five out of the six measures making up the confidence index.  Consumer confidence in disposable income and the level of debt declined by seven percentage points and four percentage points respectively, falling to their lowest level since 2014.

It has been commented that a squeeze in living standards has dented consumers’ spirits. With inflation rising to 2.9% in June, its highest level in four years, and earnings growth around the 2.0% mark, consumer spending power is shrinking for the first time in three years.  Business confidence has also taken a knock.

However, there are also some big things going right for consumers. Unemployment is at a 40 year low, the employment rate has never been higher and interest rates – and debt funding costs – are at rock bottom levels.  Consumers are feeling the pinch from higher inflation, but sentiment about job opportunities, career progression and job security are higher than they were a year ago.

Financial Services

The latest CBI/PwC Financial Services Survey saw optimism in the sector fall once again. However, this was not universal: while banks and life insurers felt less optimistic than three months earlier, finance houses, insurance brokers and investment managers felt more optimistic.  At the same time, business conditions – such as volumes, profits and hiring – saw robust improvement.

Furthermore, concerns over a deterioration in financial market conditions remain elevated. Nearly a fifth of firms believe there is a high likelihood conditions will worsen over the next six months, with a further two thirds seeing a medium likelihood.


UK labour productivity fell 0.5% in Q1. It has been commented by some that productivity has been stifled by chronic underinvestment.  Moreover, this has been further exacerbated by current unprecedented uncertainty.  And it is reflected in sluggish wage growth.  Furthermore, business costs are now at their highest in four years.  Many firms are delaying their investment decisions, awaiting further clarity on the implications of Brexit.


Nationally unemployment has reduced to levels not seen since the early 1970s. Moreover, regional unemployment figures have continued to be better than the national picture:  3.82% compared with 4.5% in the first quarter of the year.

Mergers and Acquisitions

The value of M&A deals between the UK and the rest of Europe has more than doubled since the referendum. Also, according to analysis from Deloitte, deal volumes have remained broadly steady.

Since the EU Referendum, M&A between the UK and the rest of Europe has remained strong. This is not only a vote of confidence in the region’s economic prospects, but also suggests that a devalued sterling is making UK assets more attractive.

Most deals are in Consumer Business and TMT (Technology, Media and Telecommunications), as companies look to upgrade technology and increase efficiency. French and German companies have been the main acquirers of UK companies so far.  Uncertainty from Brexit and the recent general election would normally adversely affect M&A volumes.  However, low interest rates and the weight of capital available in the market is currently working against this.


Over 40% of businesses say that Brexit has affected their investment decisions, according to a new survey. Mostly companies cited general uncertainty over the UK’s future relationship with the EU as the main reason. I n contrast, the weakness of sterling against the dollar was viewed as the only positive impact.  However, almost 60% of firms that responded to the survey said that Brexit had not affected their investment decisions.

Firms are making investment decisions right now, that will last for years to come. It has been widely commented that they need more sense of clarity and continuity to support jobs and prosperity.  Some parties are suggested staying in the single market and a customs union until a final deal comes into force. This is seen by some as the simplest way of ensuring companies don’t face a damaging cliff-edge and that trade flows can continue without disruption.

What’s changed since the Brexit vote?

Recently Parliament voted on the EU withdrawal bill, transferring EU law into UK legislation. Many predictions were made before the referendum about what would happen to the economy and society, but what’s the reality? Explore this visual article and test your knowledge with the National Office of Statistics’ interactive quiz.

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