The UK labour market has transformed

The labour market has changed dramatically…

The EY ITEM Club special report on the UK labour market sets out in detail the scale of the transformation since the onset of the financial crisis. The number of people looking for work has increased by over 1mn since the start of 2010, there is a record of 30.8mm people in employment and yet real wages fell by 8% between 2008 and 2014. This is a very different market from the one that prevailed for the last two decades when rises in employment typically translated into rises in real wages.

EY ITEM Club expect these broad trends to continue in the medium-term. The labour supply is forecast to grow by 1.2mn over the next 4 years, at a 0.9% faster annual rate than between 2010 and 2014, and although real wages will rise, the rate will be moderate for the level of employment, averaging only around 1.5% per year.

…with wide-ranging implications for business…

The new labour market will clearly have a significant impact on the way that companies seek to manage their human capital but the changes in the UK labour market are so significant that they will have implications beyond the strategic and operational issues in the human capital domain. Businesses now need to incorporate this new labour market outlook into their strategy and planning.

…impacting both demand…

Although EY ITEM Club believe that much of the change in the labour market is due to the changes in the level and structure of the labour supply, there will be a major impact on the level and structure of demand that businesses face. This is because not only has the labour market changed in aggregate over the last few years, but it has also transformed at a disaggregate level with shifts between segments and sectors. It is the combined effect that will impact the demand for goods and services. One of the most striking changes is the fact that the growth in aggregate consumption has been driven more by changes in total employment and hence total income than by real wage rises for the existing workforce. When we also take into account distributional effects – the growth in real wages has been concentrated amongst workers earning £25,000 or less and the number of workers earning over £45, 000 has fallen by around one seventh, the picture becomes clearer. Businesses selling in the consumer market will have to continue to ensure their offers are value based and priced appropriately for a market in which there is less real income growth than before the financial crisis. Life for sellers of luxury and high end goods is likely to remain challenging even as the economy recovers.

Another likely consequence of the developments in the labour market that EY ITEM Club predicts is for an increasing share of labour income to go to older workers. By contrast, younger workers may find it harder to replicate the acceleration in incomes that previous generations achieved. The analysis of income distributions suggests that the value of qualifications is being squeezed in this labour market. For businesses, it will be important to review the balance of their sales and marketing efforts across age groups. The consumers of the immediate future are likely to be older and with lower income growth prospects on average than would have been the norm in previous periods.

The increase in the number and share of self-employed workers in the labour force will also impact the consumer market. These workers are likely to be less secure in their employment and may well find it harder to raise debt and especially mortgages. This lack of security may well translate into different purchasing patterns and a demand for new product and service offers, particularly for financial services. Businesses need to begin to work through how the changing labour market may impact their product and service portfolios and propositions.

..and operating models…

The dynamics in the market serve as further reinforcement of how much the labour market has changed and how significant this could be for businesses. It is likely that corporates have deployed relatively cheap labour to help maintain margins and to minimise capital investment in what has been a difficult economic environment. With the expected developments in the labour market, is now the time to consider a new approach? It is true that the broad trends in the labour market that have supported significant hiring are going to continue. However EY ITEM Club do envisage real wage growth and although this is in an economy that is expected to grow faster, margins could come under more pressure. In addition, there is the risk of skill shortages and battles for talent in certain parts of the labour market. There are clear areas for analysis in the operating model:

  • When we look across occupations we can see an increase in professional and managerial roles but a decline in the number of back office roles and almost no growth in sales and customer service employment. It does appear that technology may be impacting certain roles and companies need to make sure they are operating at the optimal mix of labour and capital, especially as labour becomes more expensive.
  • IT continues to grow in importance and the increase in the number of people employed in professional and IT services supports this view. There is clearly a risk of skill shortages which could in turn lead into higher wage demands. Now is the time to review the IT strategy and especially assumptions on the level and mix of labour required to deliver the plan successfully.
  • The labour market analysis provides a direct insight into how dynamic the economy is. The decline in the numbers employed in the Retail sector is almost matched by the increase in Warehousing &. Transport roles. It seems reasonable to assume this may reflect the shift to online shopping. Certain retailers have clearly been caught out by this trend, it is important businesses look at their business model and how it might change to avoid being similarly caught. These are interesting times. The transformation of the UK labour market has been a key factor in the UK’s recovery to date. While the broad trends are expected to continue, developments at both the macro and micro level mean that now is the time to ensure that the dynamics of the labour market are fully reflected in business and operating strategies and plans.

Key labour market forecasts table

Could Greece save the Eurozone? Don’t look away, we are at a crucial point.

Athens

A fresh perspective from Greece, …

Watching Yanis Varoufakis on the BBC’s Newsnight programme last Friday was fascinating. We saw someone willing to challenge the basis of the economic policy currently being applied  in the Eurozone. Mr Varoufakis was clear: Greek Government debt cannot be repaid and hence Greece is insolvent. He went on to say that this means that a bailout extension makes no sense. A bailout is the solution to illiquidity not insolvency. With Greek Government debt at 175% of GDP, the facts seem to support his view. and

…with ideas for change…

Addressing the insolvency issue is only one element of the Greek plan. Mr Varoufakis wants to have an open discussion on both austerity and the current model of structural reform with the objective being to develop an approach that has a chance of working for the Eurozone not just Greece. We should not forget how challenged the Eurozone economy remains, the December EY Eurozone forecast does not envisage growth reaching 2% anytime in this decade and unemployment in Greece and other countries is still at unbearably high levels. Surely Mr Varoufakis cannot be alone in thinking now is the time to consider alternative ways forward?

I have to confess to a personal interest here. I have worked extensively in Greece over the years with both public and private sector clients. In the course of these engagements, I had some of the most fun and rewarding experiences of my career and made some lasting friendships as well as learning about the “Greek reality”. As a result, I have spent a great deal of time observing and participating in projects to implement EU policies for industry reform that were initially developed elsewhere, usually in the UK, into Greece. If nothing else, I became convinced that “top down” solutions developed outside of a country rarely work. Yet much of the structural reform is exactly this and it is for this reason I believe we should be willing to listen to alternatives developed by people familiar with the specifics of the Greek situation. Re-hiring public sector workers may conflict with conventional wisdom but it may be a better option for Greece with policy changes made elsewhere to balance out these moves. We should at least be willing to listen to the rationale.

…but could the plan work?

I am not alone in thinking the outline Greek proposals deserve consideration. An excellent analysis can be found in Frances Coppola’s article and speaking last week, Mark Carney, the Governor of the Bank of England suggested fiscal policy in the Eurozone needed to be more supportive than it currently is. Moreover, The Economist newspaper appears to be in agreement with the ideas on debt restructuring  and reframing austerity although it is unwilling to embrace change to the ongoing structural reform process, describing proposals to change as “crazy socialism”.

Is it really crazy? I firmly believe that policy makes in Europe have failed to grasp the seriousness of their situation. Over the last three years I have presented and discussed the Eurozone situation with over 100 businesses, many of which are based outside of  the Eurozone. The overwhelming majority are extremely worried about the economic situation and are very reluctant to commit resources to expand their operations in the Eurozone. It is no surprise that investment has been so low in recent years, business leaders cannot see the growth story in either the short, medium or long-term. Quite the opposite, I have heard leaders speak at length about how they despair of watching the Eurozone economy continue to decline and lose its productive capacity. In the face of such high levels of youth unemployment with investment insufficient to create the basis for future growth, one CFO said to me, “Where are the European consumers of the future going to come from?”.

A more reasonable question might be, why would policy-makers not consider alternative courses of action?

What does it mean for business and investors?

It is difficult to predict what the outcome of the current activity. Detailed discussions have yet to take place and negotiations are currently only taking place in the media. In high-level terms, there are three outcomes, either:

  • Negotiations do not reach an agreed conclusion and lacking financial support, Greece leaves the Eurozone; or
  • A ‘muddle through” position is agreed with minor changes to the current outlook; or
  • There is a significant change in policy agreed impacting Greece and other countries in the Eurozone.

The first option is one businesses should now have plans in place to address. The scale of the impact remains uncertain but this scenario has been around for some time.

The second case would mean little change to current circumstances and outlook.

It is the third option that is most interesting and does merit further consideration by businesses. This is particularly so because the Greek initiated negotiations come at a very interesting time for the Eurozone. After months of discussions, the ECB has finally launched quantitative easing and the € has continued to weaken, offering benefits to European exporters. In addition, the oil price has fallen significantly which will boost economic growth primarily via increased consumer spending. if QE now also acts to boost asset prices and increase bank lending then the Eurozone might find itself benefitting from a reasonable tailwind for the first time in several years.

If the Greek Government was to be successful in obtaining some relief from its debt burden and also managed to initiate a change in the nature of austerity and structural reform in other countries, the combined effect with the tailwinds described above could be reasonably significant. For the first time since 2010, growth in the Eurozone could start to accelerate at levels that would be noticeable.

The Eurozone is not suddenly going to bounce back to pre-crisis levels of activity. Improving the outlook is a long-term game requiring further hard work and sacrifice but the short-term outlook could look better relatively quickly, providing an envelope in which to continue reform with more positive support. In this environment, opportunities for businesses to make moves to improve their position in respect of their European assets. With higher asset values both buying and selling of assets might become more realistic giving companies the opportunity to either tidy up their portfolios or to acquire assets to help them consolidate markets. There might be enough growth to support business cases that have been put on hold.

Things could suddenly become much more interesting. So while the mood is of worry and concern it is important to stay balanced with a close eye on developments. We are at a critical point in the Eurozone’s journey. What a turn-up if Greece were to be the catalyst for securing the Eurozone’s future.

The impact of the Greek Election for UK businesses

Profit warnings surge – forecasting is difficult in a divergent world

Highest number of profit warnings for 6 years – what happened to “Silver linings turning gold”?

A week is a long time in economics…

Profit warnings reached their highest fourth quarter total since 2008 in Q4 2014, with 93 warnings also taking the annual total for 2014 to a six-year high. But this news comes only a week after the EY ITEM Club forecast which set out a very positive prognosis for  UK growth. How can we explain these seemingly contradictory views of the economy?

       

This is a level of profit warnings more consistent with a period of low growth or global shock than an improving macro outlook. There were signs that the UK and global economies were slowing as 2014 came to an end but the level of profit warnings still appears out of line with underlying economic conditions. What this latest analysis shows us is how difficult it is to forecast in the current economic environment.

Graph for blog 1

…and it has been a long year for profit forecasts… 

The key features of profit warnings in 2014 set out below illustrate some of the key factors making forecasting so challenging :

  • More FTSE 100 companies warned in 2014 than at the height of the credit crunch, whilst total profit warnings from FTSE 350 companies were just three shy of the record 90 issued in 2008.
  • Adverse exchange rates, in particular a strong pound and weakening emerging market currencies, were especially troubling for the internationally exposed FTSE 350. In 2014, 17% of profit warnings cited exchange rates – including 27% of warnings from FTSE 350 companies.
  •  In 2014, 20% of warnings cited contract delays or cancellations, rising to 27% in Q4 2014. The FTSE sectors that are vulnerable to contract disruption led profit warnings in 2014, including Support Services (47), Software & Computer Services (28) and Media (16).
  • The pressure from the squeeze on real incomes is evident from the sharp rise in profit warnings from Consumer Goods companies in 2014 – up by over 70% from 2013. Pricing and competitive pressures triggered 21% of all profit warnings in 2013, compared with 7% in 2013.
  • Unsurprisingly, profit warnings in FTSE Oil & Gas segments rose from seven in 2013 to 11 in 2014. The rapid fall in oil – and other commodity prices – has compounded existing capex pressures, increasing stress for contractors and suppliers, with warnings coming thick and fast in 2015.

 …especially in a complex, volatile economic environment…

The economy has changed from the pre-crisis environment. No longer is strong growth helping all sectors to grow. What we see today is much more divergent performance but in a very interconnected world. As an example, the moves by the Swiss National Bank to stop its policy of intervention in the foreign exchange market were most likely driven by the expectation of capital flows increasing as the ECB moved to Quantitative Easing and Russian investors continued to respond to the fall in oil prices and the impact of sanctions.

The three most important drivers of profit warnings can be attributed to changes in economic conditions:

  • Exchange rates were a standout theme in 2014, peaking at 26% of warnings in Q1. The contrast between the strong pound and weaker Euro and emerging market currencies – together with weakness in these economies – help to push profit warnings from the internationally-exposed FTSE 100 to a record high. Healthcare, finance and support services sectors were particularly affected.
  • Competitive pressures were a constant throughout 2014. Low insolvency rates, new entrants and technological changes have brought seismic changes to previous market norms. The pressure to invest, and yet cut costs and prices, is transmitting strain along supply chains
  • Warnings citing delayed or discontinued contracts peaked in the final quarter as uncertainties upset contract cycles.  In the final quarter, 44% of warnings from the contract-dependent FTSE Support Services cited delays or cancellations.

Business must be prepared

There are clear advantages in these uncertain times for companies who can take the initiative and demonstrate resilience in the face of economic and market volatility. Companies will need to demonstrate clear vision and the ability to adapt their forecasting and planning capabilities to the dynamics of the post-crisis economy.

Many of these pressures represent new realities, rather than a passing phase. An improving macro outlook is no longer a guarantee of a smoother ride for UK plc. Undoubtedly, many companies have faced increasing challenges to their forecasts in recent months from rising geopolitical concerns and falling oil prices.

Forecasting and planning approaches must be adapted to allow for scenario analysis especially around key assumptions such as currencies and also for disruptive events. While it will not be possible to avoid shocks, careful up-front analysis will at least build an understanding and allow companies to have contingency operational and communication plans in place. This will provide the opportunity to mitigate adverse impacts on both results and market sentiment. This is the “new normal” approach to planning: many futures have to be considered; no longer can the past be used as the guide to the future.

 

Happy New Year…or is it? Welcome back to risk and return

EY ITEM Club comes into its own…

EY ITEM Club was created over 25 years ago by companies wanting a business view of the economy. EY’s sponsorship ensures the two-way interchange between economics and business continues and the Winter 2014-15 forecast illustrates how important and powerful this relationship is.

The forecast is for increased GDP growth in the UK but against a backdrop of increased risk and uncertainty. This creates a very decision environment  for business: opportunity exists but things could change very quickly. While the economic forecast implies businesses should accelerate their ambitions, the pragmatic business view leans towards a more cautious view in the light of potential risks. The EY ITEM Club model attempts to calibrate for the range of likely responses but ultimately the aim of EY’s sponsorship is to facilitate the debate and analysis around the risk and return trade offs: exactly the situation we now find ourselves in. I explore the specific issues for business to take into account below, this is based on the content of our pre-launch discussions with our clients on the outlook and implications.

Cheaper oil driving growth and potential returns..

The dramatic decline in the oil price in recent weeks means that the UK economy, driven by much higher consumer spending,  is expected to grow by 0.5% more than was likely only 3 months ago, according to the EY ITEM Club Winter forecast. GDP growth in 2015 of 2.9% is a significant shift from the previous view of 2.4% and points to a dramatic change of gear for a UK economy that appeared to have been slowing in the last quarter of 2014.

EY ITEM Club UK Winter Forecast 2014-15

EY ITEM Club UK Winter Forecast 2014-15

The good news does not stop there. EY ITEM Club have upgraded their forecasts for 2016 through 2018 as well and we are looking at annual growth of almost 3% for the four-year period. Inflation in 2015 is forecast at zero, yes..ZERO and does not reach the Bank of England’s target until 2017 at the earliest, which means interest rates are likely to remain unchanged in 2015.

EY ITEM Club UK Winter Forecast 2014-15

EY ITEM Club UK Winter Forecast 2014-15

…but risk is back as well…

While the UK economy appears in rude health, the risks are increasing. The oil price is the most obvious risk: a rapid rise could remove many of the recent benefits. But there are other economic and political risks on the horizon.

The Eurozone crisis has returned and the upcoming election in Greece is the most immediate problem, but beyond this the signs are that the Eurozone economy continues to struggle. The ECB appears to be moving towards Quantitative Easing but although a boost to the European economy should be good for UK exports, the immediate effect of QE would most likely be to weaken the Euro and hence damage UK competitiveness.

The UK General Election in May is a looming political risk with the differences between the two largest parties greater than in recent memory, meaning uncertainty is that much higher. Beyond the immediate economic policy differences is the threat of a referendum on EU membership – several EY clients have already asked for our view on what this might mean.

There are political risks in all regions, Russia, the Middle East and Korea for example but the greatest economic risk is policy uncertainty. With lower global growth than before the financial crisis, there is huge pressure for structural reform nearly everywhere, not just in the Eurozone. Major economies such as China, India, Brazil and Japan are all working to reform their economies as are many other countries such as Mexico and Indonesia. There are few sure bets in the global economy.

The key question…is it time to be brave?

A 0.5% revision upwards in the EY ITEM Club forecast in 3 months and the unexpected move by the Swiss National Bank int he last week, show how difficult this economy is to call.  The EY Analysis of UK profit warnings for Q3 2014 confirms this: the Uk saw the highest Q3 warnings since 2008 with pricing, competitive intensity and currency movements all cited as reasons for earnings missing expectations despite 2014 being a good year for the economy. But with strong GDP growth forecast for several years ahead, is this now the time to take a risk?

It is certainly time to get ready…

There is sufficient uncertainty to make companies nervous about pushing ahead aggressively even though the potential returns appear attractive. The consumer is expected to lead growth with business investment set to follow, but it is the corporate sector that is most sensitive to the economic and political risks.

It will be a brave company that would go out all guns blazing. However, with significant returns potentially available, it would also be remiss of leaders not to explore the opportunities and to make plans. Several of the risks identified, Greek election, UK General Election, QE and the ECB are likely to play out in the next 3 to 6 months so preparing now and monitoring the situation would seem to  be the sensible option.

…revisit those forecasts and develop options…

Almost certainly, given the rapid change in outlook, business forecasts for 2015 are conservative, at least for consumer facing companies. The starting point for planning therefore is a review of these forecasts and the supporting economic assumptions to ensure there is a robust “base case” forward view.

Once the base is established, the plan should be tested for the likely variability in the major potential assumptions (eg oil price, consumer spending growth, business investment) and shocks such as the Eurozone, UK General Election and business specific risks such as changes in China if this is a major destination for sales. The aim of this process is to size the up and downsides and identify potential actions, such as investment if conditions improve, cost management if there is a decline, and create contingency plans.

“it is “business as normal”

After a period of growth on all fronts, the world moved into safety first mode. In both cases, decision-making was relatively straightforward. We are now heading back to more uncertain times with potential higher rates of growth and hence return, but with more risk.

Goodbye to the BRICs, Chinese businesses have a new mindset.

Chinese business sentiment has changed….

Chinese business sentiment has converged with the views of business in the USA according to EY’s 11th Capital Confidence Barometer, a twice yearly survey of 1,600 global corporates. Chinese businesses are thinking much more like businesses in developed markets rather than as emerging market players, China is no longer part of the BRICs.

… as a result of economic change at home and abroad…

Economic confidence in the USA has increased over the last year and now 70% of US businesses are confident in local economic prospects. The equivalent figure in China is very similar at 75%, but there is a huge difference to the average confidence level in Brazil, India and Russia (the BRIs) which stands at 43%.

But it is not just on local economic conditions that the USA and China are similar in outlook. While global political instability is seen as the most significant risk by all the 3 groups of businesses, concern over the slowdown in emerging markets was identified by only 16% of Chinese and 9% of American businesses but 29% of respondents in the BRIs identified it as a major risk. By contrast, 18% of Chinese and 15% of American businesses saw the Eurozone crisis as a risk, compared to only 4% of corporates in the BRIs.

China’s economy continues to evolve and the economic condition facing businesses at a macro level are now much more like those experienced in the USA than by the fellow members of the BRICs. China’s economic domain is global and its fortunes are balanced across the globe, with more dependence on developed markets than its fellow BRIC members which remain relatively more exposed to other emerging markets as well as China.

…impacting capital allocation decisions.

Corporate sentiment towards future transactions serves to highlight both the similarities between business leaders in China and the USA, and the differences to their counterparts in other members of the BRICs. 78% of businesses in China and 81% in the USA see their local M&A market improving in the next 12 months compared to 40% of businesses on average across the BRIs.

When asked about capital allocation across geographies this pattern continues to hold. Almost three quarters of Chinese and US businesses expect to increase their investment in developed markets in the next year compared to only 25% of BRI businesses: a huge difference confirming again that business in China has more similarities with developed economy corporates than those operating in emerging markets. For non-BRIC countries, intended investment rates from China and the USA are around double those of businesses from the BRIs, and more than 50% higher for planned investment into the BRICs. China and the USA are very, very similar to one another and very different to the BRIs in respect of capital allocation.

The only significant difference between businesses in China and the USA is that Chinese leaders are even more aggressive in their growth ambitions. 56% of Chinese businesses intend to undertake an acquisition in the next year compared to 33% of US and 30% of BRI businesses. And 60% of Chinese respondents identified growth as their priority for the next 12 months compared to 50% in the USA and 35% in the BRIs. Chinese business is increasingly confident in its own abilities and its prospects and wants to push forward and build a competitive position in developed markets.

 

…so business should plan accordingly.

Chinese businesses are increasingly global in their outlook and have ambitious growth plans. Even though their domestic market is slowing, growth in GDP of around 7% provides a strong platform for developing and implementing medium to long-term strategies, something businesses in other markets often find challenging.

UK businesses should ensure that their approach to dealing with their Chinese counterparts reflects the situation described above. This is now a peer to peer relationship between mature, sophisticated operators. Increasingly we can expect to see a growth in Chinese investment and presence in UK markets and UK businesses need to decide on their future relationship with the new arrivals. Is the best approach to compete head on, to collaborate or some mix of these approaches? Certainly understanding the new players is a critical first step and must go beyond stereotypes to try to understand what is really going on.

In a low growth world, M&A is more sensitive to the economy: the race to get on the right side of the line

Values up, volumes flat…

Uk M&A activity in 2014 shows a wide divergence between value and volume. While M&A value has increased by 68% in 2014 to $260.7 Billion, volumes are relatively flat, only growing by 5.1%. Digging further  into the data it quickly becomes clear that the headline numbers hide even wider disparities between sectors in terms of both the level and the nature of M&A activity.

…and divergence increasing…

The increase in deal volume has been driven by Consumer Products and Retail (343 deals, a 31% increase on 2013), Media & Entertainment (221 deals, 39% increase on ‘13) and Technology (412 deals, 12% increase on ’13).

Woman Shopping at a Grocery Store

These three sectors were also amongst the top 6 generating the most value and so contributing to the $105.7bn year on year increase in value. Life Sciences ($31.2bn), Real Estate ($25.1bn) and Telecommunications ($21.1bn) were the other high spending sectors.

By contrast, low volumes and values were to be found in Aerospace & Defence, Government & Public Sector, Mining & Metals and Provider care. And while volumes were slightly higher, the deal value was also low for Oil & Gas and Power & Utilities.

…as business adjusts to the new UK economic paradigm…

The UK economy is clearly playing a part in shaping M&A activity. In the pre-crisis period, when growth was relatively high, all sectors were able to benefit. Today we are in a lower growth environment but crucially, one in which prospects and challenges vary significantly by sector.

The high value, high volume acquirers are in dynamic and relatively fast sectors that are going through significant change. Companies are using M&A as a part of their moves to reposition to make sure they are on the right side of the growth line. Technology and Media & Entertainment companies are looking to acquire new skills, content and capabilities and to capture the benefits of the revival in UK consumer spending. Activity in the Life Sciences sector has been partly driven by the inversion opportunity but also by companies looking to replenish and adjust their drug portfolios to reflect their views on the appropriate segment/product mix as economic prospects, demographics and the impact of fiscal austerity impact the market.

We can see the impact of austerity and changes in government spending reflected in low volumes and values of activity in Aerospace & Defence, Government & Public Sector oriented businesses and Provider Care. With an election looming in which the view of the two largest parties on public finances is as wide as it has been for several decades, so political uncertainty has been added to the challenges created by the austerity programme.

The changing nature of demand in the world economy, especially China’s moves to rebalance its economy have reduced the demand for commodities which is a factor in the low activity recorded for Mining & Metals. Limited progress on shale gas in the UK, increase uncertainty over energy policy with the referral of the sector to the Competition & Markets Authority, and the fall in the oil price all form part of the rationale for low activity in Oil & Gas and Power & Utilities sectors.

Offshore Oil Platform Under Construction

…as well as broadening their horizons.

Overseas deals completed by UK companies saw a 16% increase in the year to November (from 641 to 766), with values increasing by nearly 60% from $44.5bn to $105.5bn – catapulting the UK to second most active overseas acquirer ahead of Germany, Japan and China, second only to the US. A recovering domestic economy and increased corporate confidence together with a strong stock market and access to financing has enabled UK business to increase its international M&A activity

To thrive and survive transaction strategies must change

Considered overall, transaction levels have been too low in the UK given the need for businesses to sustain a healthy level of deal activity to remain competitive in this rapidly changing economic and technological world. Together will relatively weak capital investment levels, this means that business is now readjusting quickly enough. Certain sectors are pushing ahead but more action is required by businesses to position themselves effectively in the new economic environment in which we find ourselves.

Follow me on Twitter to join in the debate: @MarkGregoryEY