UK Business Activity Shrinking: Is It A Concern For Your Company?

The business world is ever changing and, at times, it can be hard to keep up. In many ways, it’s about knowing when to put your defences down. If you imagine your business as a stable brick house in the centre of a storm, it’s about knowing when it’s safe to go outside and renew life as normal again. Just last month, the UK was clearly in the eye of the storm.

It was around the end of July that it was announced consumer price inflation had dropped to 6.8%, down from 7.9% in June and a 41-year high of 11% back in October, 2022. For many businesses around the UK, this was a moment of hope, that perhaps the cost-of-living crisis was petering out, and the strength of the business landscape was going to go back to levels seen in 2018 and 2019.

But now, according to recent data, it seems August has been the backdrop to a sharp downturn, with the PMI – purchasing managers index – pointing to a significant fall in UK business activity, which could even beckon in a new “heightened recession”.

What Exactly Has Happened?

As ever with storms, it’s hard to put a finger on why exactly they started. But it wouldn’t be wrong to blame the previous high interest rates as one of the biggest causes of the dismal business activity. If the inflation rate is high, then businesses are going to hike their interest rates to combat it – and this subsequently leads to a lull in new orders, output, and more businesses borrowing their money. All of these traits lead to reduced business activity, which has subsequently dropped the pound down to 0.5% – a significant decrease when considering the US dollar sits at $1.26.

What Should Your Business Do?

If you are currently operating in the UK business market, you’re probably concerned about the general output, but it’s important to keep your concerns close to home and work on maintaining the business activity that you do have. Your existing clients, for instance, must be kept on board while business is low, and further incentivised to keep up their purchases and loyalty.

When you consider that 30% of ecommerce business is made by returning customers, this figure only becomes more important when working through market uneasiness and turmoil – visit if you don’t already have an incentive plan in place.

Similarly, you need to stay hyper-alert to the current situation. This might seem like a simple point, but as we mentioned before, the business world is ever changing. Just look at business predictions last month, where analysts expected business activity to continue to expand after the lowering inflation rate.

The PMI fall from 50.8 to 47.9 was in direct contrast to the forecasted reading of 50.3, and this demonstrates the importance of staying reserved and vigilant when it comes to where you push your business. The end of the storm could actually be the eye of the storm, and with the head of the S&P Global Market Intelligence now predicting a renewed contraction, it’s crucial that you recognise the state of the landscape and keep on the corresponding track.