UK economic prospects Too much doom and gloom?

It was 29 January 2025 and the chancellor was at Siemens Healthineers, formerly Oxford Instruments, which designs and manufactures superconducting magnets that are used in MRI scanners.

The high-tech manufacturing hub was an ideal location to deliver a sales pitch declaring that Britain was open for business, before jetting off to Davos, the chic Swiss ski resort that once a year plays host to the rich, the famous and the international business elite who gather for the World Economic Forum.

After a few tough months for the government, the speech contained a few glimmers of hope for Reeves to trumpet.

“We are seeing some encouraging signs in the British economy. The IMF have upgraded our growth prospects for 2025 … the only G7 country outside the US to see this happen. This gives us the fastest growth of any major European economy this year,” the chancellor said.

But perhaps the biggest surprise was in Reeves’ brief reference to a survey by PwC.

“And a global survey of CEOs by PWC, has shown Britain is now the second most attractive country in the world for businesses looking to invest. The first time the UK has been in that position for 28 years.”

The PwC survey stood out as it appears to run counter to the prevailing doom and gloom narrative seen elsewhere – including the IoD’s own business confidence indicator, which in December 2024 tumbled to the lows seen at the outset of the Covid pandemic. Even the brains trust at the Bank of England (BoE) recently halved its UK growth forecast, from 1.5% previously to just 0.75% this year.

So, what are the CEOs who took part in the PwC survey seeing that IoD members, and the BoE, have missed? We’ll take a look at whether the chancellor is right to feel buoyed about the survey and the potential to ‘kickstart economic growth’.

Stability Is Key

According to PwC’s 28th Annual Global CEO Survey, the UK has risen to become the second-most attractive global destination for international investment, moving up from fourth spot a year ago to leap ahead of Germany and China.  This is the first time the UK has secured this spot in the history of the survey.

PwC surveyed 4,701 CEOs across 109 countries and territories from 1 October through 8 November 2024.

Britain now trails only the US as a business investment destination, with 14% of global CEOs saying the UK will receive the greatest proportion of planned international capital expenditure. The US commands 30%, with Germany (12%), China (9%) and India (7%), making up the top five.

Despite the doom and gloom surrounding Sir Keir Starmer and Reeves’ start to their time in office, it appears their predictable stability played a big part in global CEOs giving Britain a thumbs up as an attractive place to invest. This contrasts with growing concerns about the shifting political tectonic plates elsewhere – like Germany, France and the US – and the uncertain outlook for international trade that has reverberated from these shifts.

Marco Amitrano, senior partner of PwC UK, said: “Our CEO survey findings are a vote of confidence in the UK as a place for business and investment. The UK’s relative stability at a time of instability should not be underestimated, nor should its strength in key sectors including technology. However, there is no room for complacency. Reasserting Britain’s place on the global stage requires a tangible path to growth and a consistent government approach to business and investment. Business is playing its part – with two thirds of UK CEOs developing new business capabilities or operating models in the pursuit of growth.”

Against a backdrop of geopolitical and trade tension, CEOs said they were optimistic about the outlook for the global economy. Almost 60% expect global growth to improve in the 12 months ahead, up from 38% in last year’s survey and only 18% two years ago.

Within the broadly optimistic picture, there were stark differences between countries. Among the G20 countries, CEOs in Germany were gloomiest about the outlook for the domestic economy, reflecting an industrial base experiencing not only weak demand but also supply shortages in energy, components, skilled labour and other areas.

Around 61% of UK CEOs anticipate economic growth in the next 12 months, up from 39% last year. Meanwhile, CEOs in India and Argentina were most optimistic – nine out of ten CEOs in India (87%) expect domestic economic growth to accelerate in the year ahead.

Smart Money

This shift in attitude from CEOs towards the UK comes at a time when bosses globally are looking at new sectors and markets. According to the survey, more than a third said they had started to compete in new sectors in the last five years in order to stay competitive.

The rise of Artificial Intelligence (AI) is beginning to drive and re-shape businesses and the markets they operate in. Britain is seen as being ahead of the game on adoption of Generative AI, or GenAI, but other countries are catching up.

PwC noted there has been a two-fold increase in GenAI adoption by UK businesses since last year’s survey. GenAI refers to AI systems capable of generating new content, ideas, or data that mimic human creativity.

Some 93% of UK CEOs say their firms have now adopted the technology to some extent, compared with 42% the previous year. Global counterparts are at 83%.

However, there is still some way to go until UK firms reap the financial rewards of their early adoption – only 36% of UK bosses expect GenAI to increase profits in the next 12 months, whereas CEOs globally are more optimistic, with 49% believing their profits will increase due to the technology.

Amitrano at PwC UK, said: “While many UK businesses have adopted GenAI to some degree, those degrees will vary enormously. There is a big difference between letting employees experiment with AI and embedding it into core business processes. UK business has begun to move beyond the initial hype of GenAI to the reality of making it work – but that shouldn’t detract from its huge unrealised potential. That more than a third of business leaders expect to see some financial gain from GenAI within the next year is very significant, and indeed encouraging.”

Conclusion

Fixing the country’s economic rocket boosters is a complex job that is clearly going to take time. But it’s all too easy sometimes to jump on the doom and gloom bandwagon and overlook the positive factors in Britain’s favour as a good place to invest and grow a business.

A buccaneering approach to developing and adopting new technologies coupled with a ‘calm head when all around are losing theirs’ is an attractive prospect for global CEOs, who value political and economic stability and boring predictability.