|Businesses are more confident in themselves now than they were before the start of the financial crisis, Sir Martin Sorrell, the boss of WPP, has claimed.
The advertising chief said that businesses are still daunted by the uncertain economic outlook, which makes doing business “a grind”, but that companies actually have “tremendous” optimism about their own positions.
They have been conserving cash, paying down debt and are now much more stable, putting them in a stronger position to make investments should they need to, he told The Daily Telegraph.
“There is a paradox. They have tremendous confidence – much more so than in September 2008, pre-Lehman’s.
“Margins are at an all-time high, stocks are performing well, balance sheets are strong. Everything is moving in the right direction, but companies are still cautious.”
His comments came as WPP, the biggest advertising agency in the world and a bellwether for the wider economy, reported a 6pc increase in first-quarter revenues to £2.53bn, including a 3p rise in its like-for-like revenues.
The company is on course to deliver record results this year, topping the £1.3bn pre-tax profits and £10.4bn revenues it reported last year, he said.
Most of the growth is driven by emerging markets, particularly in Latin America, China and the Middle East. However, Britain also proved something of a bright spot.
WPP’s grew its like-for-like revenues in the UK 3.7pc, buoyed by the 0.3pc growth in the economy and bucking the trend for the rest of western Europe and America. WPP slid backwards in those territories by 0.8pc and 1pc respectively.
Sir Martin said that achieving that level of growth in Britain had felt like “hand to hand combat in the trenches” because even businesses with strong balance sheets were incredibly cautious about spending.
He refused to say when Britain might climb out of those trenches, but predicted it would be a long time.
“We’re bumping along the bottom and it’s a corrugated bottom. There is no reason to splash out and that is why it is still a grind,” he said.
“Clients are cautious. I don’t think they have changed their behaviour since last year. Last year we had events like the Olympics [which boosted spending and confidence] but this year the grey swans feel a bit whiter,” he said.
The grey swans are events which we know will have a major impact on the global economy, but whose outcome is still uncertain – for example mounting political tensions in the Middle East and the question of whether China’s rapid growth would come to a sudden slowdown, or a so-called “hard landing”.
“Concerns globally about the grey swans including the Eurozone crisis, the Middle East, a Chinese or BRICs hard or soft landing and, perhaps, most importantly, dealing with the US deficit and a record $16 trillion of debt, continue to make clients reluctant to take further risks, despite stronger balances sheets,” he said.
However, businesses are also keeping a tight rein on spending because managers are afraid to take risks that could jeopardise their own positions.
“The average life of a chief executive is three and a half years. The average life of a chief marketing officer is two years,” he said. Senior executives who do take a gamble and fail get hauled over the coals for “making a booboo” and lose their jobs, “so why take the risk?” he said.