- Measures for inflation are at the highest levels on record with over 4 in 5 (85%) firms expecting to raise prices and no sign this is levelling off
- More than 4 in 5 (85%) cite inflation as a growing concern for their business, also an historical high
- Three quarters (75%) of firms report no increase to investment in plant/equipment
The BCC’s Quarterly Economic Survey (QES) for Q2 2022 – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – shows key economic indicators flashing red. The survey of over 5,700 firms, including those in Norfolk revealed a weakening in the proportion of firms reporting increased domestic sales, investment intentions, and longer-term turnover confidence. Measures for investment and longer-term business confidence have slipped back Indicators for turnover and profitability confidence, as well as investment, all worsened from their Q1 positions. Firms expecting an increase in turnover over the next twelve months dropped from 65% to 42%, this is the lowest figure since Q4 2020 when much of the UK was under some form of lockdown. Confidence in profitability also took a significant knock with 30% predicting an increase, down from 50% in Q1. Nearly a fifth (19%) are now predicting a decrease in profits. Unsurprisingly, this declining confidence in business performance has affected firms’ plans to increase investment, with 3 in 4 (75%) saying they have no plans to do so (up from 73% in Q1). This metric has remained largely unchanged since Q2 2021. Inflationary pressures continue to exceed record highs 71% of firms now expect their prices to rise in the next three months, this is marginally up from 70% in Q1. None of the respondents expected to decrease their prices. Expected price rises are being felt most acutely in the retail and wholesale sector, and construction and engineering sector, both at 78%, with production and manufacturing only slightly behind at 77%. When measured as a net balance (the percentage of respondents reporting an increase minus those reporting a decrease), price expectations are now the highest since records began for this indicator in 1997 for both the manufacturing (+76%) and services sectors (+56%). When firms were asked which factors were driving price rises, 76% cited utility bills, 74% labour costs, 65% fuel and 55% raw materials. In the three sectors worse affected (Retail & Wholesale, Construction & Engineering, Manufacturing & Production) all three cited raw materials as the biggest factor. When asked what external factors were more of a concern to their business than three months ago, 88% of firms cited inflation. The percentage citing interest rates as a concern also rose for the third quarter running; nearly 1 in 3 (27%) reported interest rates as a concern, down slightly from 30% in Q1. Business activity remains buoyant but on downward trend 38% of respondents overall reported increased domestic sales in Q2, down from 45% in Q1. In the services sector, the balance of firms reporting increased domestic sales stood at +35%, compared to +49% in Q1. In the manufacturing sector, the balance of firms reporting increased domestic sales fell to +34% in Q2, the lowest level since Q1 2021. Nova Fairbank, Chief Operating Officer for Norfolk Chambers, said: “This quarter’s survey results clearly point to a weakening economic outlook amid unprecedented cost pressures and falling business confidence. “Domestic demand continues to show buoyancy, with almost half of respondents reporting increased domestic sales in the quarter. “However, indicators for structural business conditions such as investment, and cash flow, are showing no sign of improvement for most firms. “Inflation remains by far and away the top concern, with our survey measures going beyond anything we’ve seen before in the history of the data. “Norfolk businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labour. The continuing supply chain crisis, exacerbated by conflict in Ukraine and lockdowns in China, has further compounded this. “Some sectors are far more impacted than others. Manufacturers, retailers, and hospitality firms have been sounding the alarm on inflation for 18 months. “Against this backdrop, it is no surprise that business confidence for the months ahead is waning as we enter a period of heightened economic uncertainty.” Responding to the findings, Director General of the British Chambers of Commerce, Shevaun Haviland, said: “The red lights on our economic dashboard are starting to flash. Nearly every single indicator has seen a deterioration since our last survey in March. “Business confidence has taken a significant hit and fears over inflation and cost pressures are at new record highs. “But it is not too late for the Government to take action to help businesses through these challenging times and put the economy on a more stable footing. “A cut in VAT on energy bills to 5%, and other steps to relieve the tax burden on firms to encourage investment are crucial. “Better infrastructure, a plan to address labour shortages and a unified long-term economic strategy to give businesses more certainty are also needed. “The Government must swiftly demonstrate that it is on the side of business if confidence to invest is to be restored. “Only then will we be able to return some momentum to the economy and find a pathway through the current difficulties.”
