014 was the year that UK businesses regained a spring in their step, 2015 is likely to be the one in which companies consolidate the momentum built up over the past 12 months, with scope to grow further and take hold of new opportunities.
The UK is one of the more buoyant economies in the G8, with a sustained expansion in train, and we expect business confidence to stay upbeat during 2015. Although macroeconomic uncertainty remains elevated and corporates continue to hold record cash holdings on their balance sheets, this time of year is a natural one for businesses to review and update their board plans to reflect the economic and business environment, while scouring the horizon for new opportunities.
Among the factors helping to underpin the confidence of the UK’s businesses is the cost of capital, which remains low compared with historical levels. This was partly the springboard for the return of M&A activity in specific sectors during 2014, and we expect similar levels of activity in target industries this year. A number of these industries are set to drive activity during the course of 2015 – sectors which often fly below the radar. These “unsung gazelles” are well-positioned to be engines of growth.
In telecoms, a major shift is underway, precipitated by the convergence of suppliers of broadband, fixed-line, mobile and pay TV, a mix often referred to as “quad play”. Analysts expect consumers to increasingly demand these services from one or two suppliers, instead of up to four. This is likely to spark some consolidation in the sector, potentially creating new global powerhouses.
Last year was particularly active for the healthcare and pharmaceuticals sector, and this trend should continue as we see new, innovative technologies come to market – including gene therapy, stem cell-based treatments, and therapies that combine digital technologies with traditional medicines.
Other opportunities abound. In food production – in which Britain excels – overseas markets provide new areas in which to expand, as consumers increase their spending. Meanwhile, major utilities development projects in the pipeline – including Hinkley Point in Somerset and the Thames Tideway Tunnel – herald positive knock-on effects for firms in the UK supply chain.
One sector which will remain in the spotlight is oil and gas. With the dramatic fall in oil prices since June comes uncertainty, casting a cloud over investment in the North Sea – still a key sector of the UK economy. More services contracts are being won through decommissioning activity, however, which continues to bring prosperity to UK shores. Further, lower oil prices are likely to reduce businesses’ operating costs, incentivise investment, as well as provide consumers with more spending power – a boon to the retail industry.
Against a background of changing consumer preferences and opportunities in overseas markets, not to mention the uncertainty that accompanies the general election in May and continued anxiety over Europe, those businesses that do hold their nerve and realise their goals and ambitions for 2015 will reap the reward of both satisfying their customers and shareholders, while adding to the increasing prosperity of Britain.
Clare Francis is managing director of global corporates banking at Lloyds Bank Commercial Banking.