Turnaround: One third of all companies are expecting revenues to increase in the UK in 2023

• 2022 was still a year of transition – 35% of those surveyed reported a decline in revenue;
  29% an increase in revenue
• Brexit continues to leave its mark – Even three years on, 51% are complaining about a deterioration in the economic situation; by contrast, 14% see an improvement
• Cautious investment plans – although 33% (prior year: 16%) of the companies are planning small projects (volumes of up to EUR 5 million), none are pursuing major projects
• Business friendliness is seen as an advantage for the UK as investment location – 26% appreciate the business-friendly climate, 25% the lower level of regulation and 17% less bureaucracy
• Hopes that King Charles III will be a bridge builder between UK and EU – 54% of those surveyed hope that he will promote cooperation with the EU and more than one third (37%) cooperation with Germany

Three years after Brexit, there are initial indications that German-British economic relations are improving. One in three companies is expecting revenue growth (33%) in the UK in 2023. Over the medium term, almost half of the companies (48%) are expecting their revenue to increase over the next five years.

However, after experiencing another tough year in 2022 on account of Brexit, investment planning remains cautious for the coming three years. Hopes are being placed on King Charles III as a bridge builder between the UK and the EU.

These are the core findings from the annual "German British Business Outlook 2023". This was prepared for the fifth time by KPMG AG Wirtschaftsprüfungsgesellschaft and the British Chamber of Commerce in Germany (BCCG). It focuses on business expectations of German and British companies.

Whereas 29% of the companies surveyed by KPMG and the BCCG were able to increase their revenue in 2022, 35% reported declines. This is even more apparent in the case of profit after tax: 22% of the companies reported increasing profits compared to 36% with lower profits.

The economic challenges are still very much present even three years after Brexit came into force. One in two of the companies surveyed (51%) complained about a deterioration in the situation since February 2020; by contrast, 14% perceive an improvement.

An increase in the administrative burden is considered to be the main issues by more than one in four of companies (26%; prior year: 46%). On top of this, more than one in seven (15%; prior year: 43%) and one in ten (10%; prior year: 36%) companies are facing an increase in logistics costs and customs duties, respectively. The year-on-year comparison shows that the main challenges are no longer perceived as quite so burdensome in the meantime.

Compared to Germany, the UK is considered to be more business friendly by 26% and less regulated by 25% of those surveyed. 17% applaud the lower level of bureaucracy. Investment incentives such as subsidies and grants, as well as simple and quicker approval procedures for investments, are considered to be an advantage by almost one in ten companies (9% in each case).

The growing sales market is considered by 45% to be the most significant business opportunity in the UK. Partnerships with companies in up-and-coming sectors (e.g. renewable energies, batteries, digitalisation or Cloud) or the development of new markets with start-ups represent major business opportunities for 29% and 12% of companies, respectively.

Digitalisation (39%) and ESG (33%) are the areas preferred for collaborations in the German and British economy. Approximately one third (31%) of the companies view science and technology as a key area of cooperation. The strategic topics of energy supply and defence were also given as relevant fields of cooperation (22% and 19%, respectively).

Smaller investments of up to five million euros are planned for the coming three years by 33% of companies, which is more than double that planned in 2021 (16%). However, none of the surveyed companies are planning significant investments in the UK (of more than EUR 250 million) in the coming three years. Only one in ten companies (10%) is planning investments in the medium range of between EUR 5 million and EUR 100 million over the next three years, which was exactly the same as in 2021.

"Unbridled regulation and bureaucracy in the EU have improved the UK's attractiveness as an alternative location, which was highlighted most recently by the example of BioNTech. Therefore, over the medium term, we will see larger investments in the UK once again", forecasts Andreas Glunz (KPMG).

Great hopes are being placed on King Charles III. More than half of the companies surveyed (54%) expressed the wish that he actively supports rapprochement between the UK and the EU. More than one third (37%) hope that King Charles III will promote cooperation with Germany in particular.

"The economy reacts also to people and sentiment. The pragmatism of new Prime Minister Rishi Sunak in the case of the Brexit deal for Northern Ireland as well as the enthusiasm for King Charles and the sovereign's well-known passion for sustainability, nature and environment are encouraging people and businesses", says Michael Schmidt (BCCG).

About the German British Business Outlook 2023

For the purposes of this survey, KPMG and the British Chamber of Commerce in Germany (BCCG) surveyed German subsidiaries headquartered in the United Kingdom as well as British subsidiaries with headquarters in Germany. Overall, 136 companies (69 in the prior year) participated in the survey. The survey was conducted between 11 April and 28 April 2023. 86% of the companies surveyed are headquartered in Germany, 14% in the United Kingdom. Of the companies headquartered in Germany, 44% have been active in the UK for more than two decades.

Katrin Häbel

Head of Corporate Communications
KPMG AG Wirtschaftsprüfungsgesellschaft

T +49 69 9587 4228
khaebel@kpmg.com