- Just over one third of Norfolk firms (36%) now expect their prices to increase in the next three months, down from a 61% high in Q1.
- Labour costs are the biggest driver of price rises, across most sectors, cited by 68% of all businesses.
- Domestic sales, cashflow, turnover and profitability indicators are stable but remain at a low level.
- Business investment sees a drop in the manufacturing sector, and continues its long-term flatlining trend in other sectors whilst the percentage of Norfolk firms worried about interest rates remains a concern at 49%, up slightly from 46% in Q2 .
The BCC’s Quarterly Economic Survey (QES) for Q3 2023 shows the percentage of firms expecting to raise prices in the next three months has fallen for the fifth consecutive quarter. The data also reveals that for the second quarter running the main factor for increasing costs is coming from wages. The survey by the BCC’s Insights Unit of over 5,000 firms, including those in Norfolk – 95% of whom are SMEs – also reveals business performance across different sectors varies considerably. The research took place between 21 August and 14 September before the Bank of England decided to hold the interest rate at 5.25%. Respondents were split into 23% manufacturing and 77% services industries, with 48% exporting. Activity in the service sector ticks up but manufacturing is lagging behind The percentage of all Norfolk firms reporting increased domestic sales increased to 20%, a positive rise from -5% last quarter. This is mainly in the services sector however and differs from the national picture which remained unchanged from Q2 at 35%. Meanwhile 41% reported no change. For cashflow, manufacturing businesses in Norfolk saw a significant drop after 3 consecutive quarters of growth, meanwhile the services sector returned to neutral territory after a decline to -15% over the same period – reversing the trend of Q4 2022-23 to Q2 2023-24. This emphasises the significant sectoral differences Norfolk continues to experience. After a rocky end to 2022, confidence of Norfolk business bounced back and has now stabilised. The percentage of manufacturers expecting to see their turnover increase over the next 12 months jumped from 25% in Q2 to 47% for Q3, though that confidence is flatter in our service sector, virtually unchanged this quarter at 27% from 26% last quarter. Things are also much more positive on profitability where confidence rises to 23%, up from 16% in manufacturing in Q2. This recovery in confidence in 2023 is yet to feed into increased business investment. The percentage of respondents reporting an increase to investment in plant/equipment has dropped notably from 40% in Q2 into negative territory, while 55% reported no change and 29% saw a decrease. Over the last six years the number of firms increasing investment has dropped as low as 9% nationally, at the start of the pandemic, but it has never gone higher than 28% (Q1 2018). The hospitality sector remains under additional pressure with 33% reporting a decrease in investment, and 22% an increase. This is particularly problematic for Norfolk where a high proportion of our business, particularly in coastal communities and market towns rely on tourism and hospitality. Inflationary pressures continue to ease but remain the top concern. The percentage of the county’s firms expecting their prices to rise fell for the fifth consecutive quarter. 36% now expect to put up prices in the next three months. This is down from an historic high of 65% nationally in Q2 of 2022, indicating inflationary pressures are continuing to ease. While inflation remains firms’ biggest concern, the level has dropped again after a slight rise last quarter, down to 67% of firms now worried compared to 79% in Q2. However there has been a corresponding 4 percentage point rise in businesses worried about interest rates nationwide, increasing from 41% in Q2 to 45% in Q3 across the country. Labour costs are now the number one cost pressure for businesses. Concerns around wage costs was the biggest pressure for most firms for the second quarter running, although the percentage of Norfolk businesses worried has dropped from 90% in Q2 to 68% in Q3. This mirrors the feedback we’ve received throughout the year. Worries about utility prices fell further from 70% to 59% across all sector, creating clear water with wage costs as the number one issue. But again there remain wide sectoral differences with manufacturers citing wages (68%), fuel (65%) and utilities (58%) in a close three-way race as main factors driving price increases. The UK-wide picture shows that in hospitality, 81% of firms were most worried about utility costs, with wages in second place at 74%. The retail sector was least worried about labour costs, with 52% citing it as an issue, against 59% flagging utilities and 58% raw materials. Jack Weaver, Chief Operating Officer at Norfolk Chambers of Commerce, said: “The results of the QES continue to point to tough trading conditions for many firms as inflation, labour shortages, global trade barriers, and interest rate rises continue to bite. “In Norfolk, manufacturers have reported a particularly tough quarter with stagnation in sales and orders, and some concerning downward trends in investment. It will be crucial over the coming months to see how this trend plays out. “Most firms continue to report problems with recruitment across all levels and skillsets. This mirrors the feedback we’ve had in our engagement sessions throughout the year and feeds through to the impact on the skills agenda and talent retention. “Easing inflation and a strong recovery of business confidence provide brighter spots, but these need to be reinforced with a clear plan from Government on long-term investment, direction from the Bank of England on the interest rate and increasingly, clarity from the opposition on their policy position towards business.” Responding to the findings, Director General of the British Chambers of Commerce, Shevaun Haviland, said: “Our research shows that business confidence has stabilised at much healthier levels following a rocky end to 2022. But the economic warning lights are still flashing. “Firms are increasingly worried about interest rates, and while inflation concerns are falling, persistent wage pressures show we need a greater focus on relieving the UK’s tight labour market. “With manufacturing lagging behind services, and low rates of investment across the board, especially in the hospitality sector, it is clear more needs to be done to spur growth. “After the disappointment of HS2, firms want to see clear signals from Government to encourage investment. This means putting in place a five-year rolling guarantee on the full expensing tax allowance to give business some much needed certainty.”
