2022 Sector Outlook

Omicron fears aside, 2022 should be a year of investing in the future

View our 2023 sector outlook for Wales, South West and South

Recovery after lockdown

Mark Stuckey, Head of Mid Corporate for Barclays in the South of England and South Wales, shares his insights on what 2022 might hold, including the ever-increasing importance of e-commerce, big opportunities in the tech sector and a renewed appetite for investing in the future.

From what I hear from our clients, SMEs generally did much better than they expected to last year, with many businesses trading really well as we emerged from the various restrictions of lockdown.

Of course, business fortunes have to some extent been sector dependent. Hospitality and leisure businesses in South Wales, the South West and on the South Coast, for example, have had something of a rollercoaster ride – but the boom in staycations in 2021 did bring a welcome bounce-back.

However, across all sectors there was a noticeable lockdown ‘hangover’ around SMEs’ appetite for major capital expenditure projects, with many opting to sit on cash reserves and largely put their growth aspirations on hold in the short term.

In fact, amongst the M&A activity in the past 12 months, several clients with personal or family wealth tied up in their business made a life choice to reduce their risk exposure by selling all or part of the ownership.

Technology-driven innovation

If the experience of the past 20 months is anything to go by, it’s clear that use of innovative technology is becoming ever-more important to success for many SMEs. Businesses are increasingly embracing e-commerce in all its forms, and I believe there are many other long-term opportunities for SMEs to introduce technology that will deliver efficiencies and optimise their business models.

Clearly, this is good news for tech-focused companies in our region, many clustered around the growing tech hubs in Bristol and the South West, Oxford and along the Thames Valley. In Oxford we also have the UK’s most prolific university when it comes to commercialising innovation, and I’m sure it will continue to create spin-out companies in the year ahead. Certainly, it’s track record is impressive – the most successful tech spin-out to date, Oxford Nanopore Technologies, is currently valued at £2.39 billion.

Surrey is another emerging tech hotbed, and I expect the dozens of video games companies that have established themselves in Guildford to continue to thrive in 2022. Some of these developers and content production studios are among the most important players in a UK video game market that was estimated to be worth £5.7 billion last year and shows no signs of slowing down.

Barclays is always keen to help less well-established businesses to grow and 2022 will be no different with our Eagle Labs in Cardiff, Bournemouth, Brighton, Southampton and Oxford – just a few of more than 25 and growing numbers across the UK – providing incubator spaces for start-ups, innovation tools, curated events and great networking opportunities to help them innovate and scale-up.

Investing for the future

We’re not alone in working to support business in the region, with several exciting strategic injections of public and private sector investment, including the £1.3 billion Swansea Bay City Deal to boost the regional economy and create thousands of new jobs, and the Cardiff Capital Region City Deal, another £1bn+ scheme to accelerate business growth and generate new employment. Elsewhere, the Western Gateway initiative, covering South Wales and western England, has similar aims and should bring opportunities for our clients along the M4 corridor.

At the same time, the Freeport being created in our region around Southampton should provide a real boost for the city, not only as key trade gateway, but also in providing significant tax benefits to attract a range of businesses.

The revolution in hybrid working will of course continue next year and I think that brings both opportunities and challenges. On the one hand, it has the potential to drive efficiencies and provide the flexible working essential to attract and retain employees. However, I still think working together, in the same building, is fundamental to collaboration and people’s career and skills development, so there’s a delicate balance to be struck.

Other challenges facing our region’s SMEs are consistent with those elsewhere in the UK – labour shortages exacerbated by Brexit, supply chain hold-ups, rising costs (particularly freight and energy) and now, of course, renewed Covid uncertainty because of the Omicron variant.

I know businesses are, once again, nervous about the impact of Covid and the first quarter of 2022 could be a waiting game before business leaders decide to press the button on larger capital projects they have planned. But whether through strong trading performance or taking advantage of some of the support the government has provided, businesses in our region have built up liquidity and I’m confident that as soon as a semblance of normality prevails, there will be a strong appetite for capital investment.

Provided we can avoid the worst effects of another Covid health crisis, I’m feeling pretty positive about the outlook ahead and I think the stage is set for 2022 to be a good year for businesses in our region.

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