Business Investment Plans Hit Post-Pandemic Low
The proportion of firms planning to increase investment has fallen to its lowest level since the pandemic, according to the latest (BCC) Quarterly Economic Survey. The UK’s largest independent business sentiment survey also shows confidence weakened in Q2, with fewer firms increasing sales and inflation re-emerging as the leading concern.
The key survey findings:
• Only 14% of responding firms in Norfolk plan to increase investment, down from 22% in Q1
• Just 41% of local businesses said they expected improved turnover in the next 12 months, down from 51% in Q1. 30% expect a decline.
• Less than one-fifth (15%) of firms reported increased sales over the previous three months, while 37% report a decrease
• Concern about inflation rose to nearly two thirds of businesses (65%) – up from 39.5% in Q1, with fuel costs rising as a cited pressure (now 57%)
The survey was carried out by the BCC Insights Unit and the UK-wide Chamber Network including Norfolk Chambers, with the fieldwork conducted between 11 May and 8 June. Over 4,700 businesses across the UK (92% SMEs) responded online.
With the cost of doing business still high, investment intention levels remained low in Q2. Fewer than one in five (18%) responding businesses said they planned to increase investment in plant, machinery or equipment over the next three months. That’s the lowest level since the Covid pandemic. A quarter (25%) of firms said they planned to cut back on investment, while the majority of responding businesses (53%) said their plans remained unchanged.
Business confidence declined again in Q2 as local firms dealt with the impact of the Iran conflict. 41% of firms said they expected their turnover to improve in the next 12 months (compared with 51% in Q1). The proportion of firms forecasting decreased turnover rose to 30% in Q2 (20% in Q1). Meanwhile, 28% said they expected no change in the next year.
With high domestic costs and geopolitical headwinds, inflation leapt to become the top concern for businesses in Q2, cited by 67% of Norfolk firms (up from 48% in Q1). Half (51%) cited taxation as a worry.
With interest rates expected to stay on hold in the coming months, concern about the cost of borrowing rose to 29% (up from 17% in Q1). Meanwhile, concerns about business rates eased to 37% after a spike earlier in the year.
The percentage of businesses in Norfolk reporting increased domestic sales in Q2 fell drastically to a low of 16% (down from 33% in Q1). 48% reported no change, and over a third (36%) said they had seen a decrease in sales. Sectoral breakdowns show increased sales were at their lowest among manufacturing firms (8%) and highest in the service sector (21%).
With the conflict in Iran hitting global oil markets, the cost of fuel significantly increased as a price pressure in Q2. Over half of our county’s businesses (55%) said fuel costs were pushing up their prices, compared with just under a quarter in Q1 (18%). This is a challenge felt particularly in Norfolk’s energy-intensive sectors such as agri-food, manufacturing and tourism.
But labour costs remained the main price pressure, an issue cited by 82% of responding businesses. This was felt most severely by firms in the manufacturing sector (85%).
The proportion of firms that said they expected to raise prices for customers in the next three months remained around half (56%) in Q2. A slightly lower percentage (43%) expected to hold their prices. Only 1% planned a cut.
What Norfolk businesses said:
“There is a lack of confidence in industry which is stopping people being hired. The apprenticeship process is so difficult it is stopping organisations offering them.”
“The market feels tough. Good pipeline but very slow decision making.”
“As a service provider we depend on people having some surplus income. If the economy falters, then we become less affordable.”
“There has been a sharp decline in enquiries and orders.”
“Consumer confidence is low and so people tend to hold onto money and wait to see what happens, hence downturn in demand.”
Jack Weaver, Chief Operating Officer at Norfolk Chambers of Commerce said, “The continued fall in SME investment sentiment is further evidence of a longer-term pattern that no single shock explains. Businesses are in a perfect storm of increased taxation, macro-economic shocks, declining consumer confidence, and interest-rate and inflation volatility.
“Our data shows a risk-aversion cycle taking hold. Businesses haven’t lost their ambition, but years of compounding cost pressures and geopolitical shocks have produced defensive behaviour for many SMEs.
“Most firms are now experiencing policy as downside risk rather than opportunity – with the rise in employer NI a prominent example, still being felt almost two years on. Add to this the impact of changes to APR and BPR, the Employment Rights Act and persistent uncertainty in international trade, reducing the cost and complexity of the administrative burden would give many firms the space to grow.
“New government policy must be developed with a pro-growth mindset. Each proposal should start from the question of exactly how it will cause firms to increase investment, exports, hiring, or expansion. Until that test is being applied, our survey is likely to show the same pattern quarter after quarter. This will be a key measure of success for the new Prime Minister and his team.”
Norfolk Chambers of Commerce continues to support businesses across the county by providing guidance, connections and a collective voice on the issues that matter. Businesses facing challenges or looking for support to navigate the current economic environment can contact Norfolk Chambers to access the advice, resources and networks available to help them move forward.