- Four in ten (39%) businesses believe their profitability will reduce over the next 12 months
- Fewer businesses are reporting increased sales; only 33% of firms reported increased domestic sales, down from 41% last quarter.
- Measures for inflation remain at record highs as more than four in five (84%) firms say it is a growing concern for them
The BCC’s Quarterly Economic Survey (QES) for Q3 2022 shows a significant decline of key economic indicators, with weakening structural business conditions and confidence a cause for concern. The QES is the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth. The survey took place between August 22 and September 16, prior to the Government’s energy support package for firms and the mini-budget announcement. The survey of over 5,200 firms – 92% of whom are SMEs – reveals there have been significant declines for indicators of business sales, cashflow, and profit expectations. All indicators of business conditions and confidence have fallen significantly from Q2 More businesses are now seeing their cashflow decreasing, instead of increasing. One in three (32%) firms reported reduced cashflow over the last three months, while 23% reported an increase. Indicators for business confidence have plummeted; less than half (44%) of firms expect their turnover to increase over the next 12 months, while 25% expect a decrease. Those expecting an increase are down ten percentage points from 54% in Q2. Profitability confidence has dropped to an even lower level; only one in three (33%) businesses believe their profits will increase over the coming year, while 39% now expect a decrease. This is the lowest level since Q4 2020 at the height of the Covid crisis. Unsurprisingly, firms are not upping investment in their business. Only 22% reported an increase to plant/equipment investment in the past three months, while 57% reported no change, and 22% reported a decrease. Business activity is taking a hit, with fewer firms reporting increased sales Only 33% of firms reported an increase in domestic sales over the past three months, a sharp decline from the Q2 level of 41%. 24% of firms reported a decrease in sales. The outlook is particularly bleak for the retail and wholesale sector. The sector is now in its second quarter of negative territory; with far more businesses reporting a decrease in sales rather than an increase. 25% of retail/wholesale firms reported an increase in domestic sales, while 39% reported a decrease. Alongside the retail and wholesale sector, other sectors are also struggling; almost three-quarters (71%) of hospitality businesses reported they are operating below capacity. Inflationary pressures are showing no signs of letting up The percentage of firms expecting their prices to rise over the coming months (62%) remains close to last quarter’s record high. 84% of firms also cite inflation as a growing concern to their business – by far the highest level on record. A rising proportion (37%) are also worried about interest rates. Commenting on the Norfolk results, Nova Fairbank, Chief Executive Office for Norfolk Chambers, said: “This quarter’s survey results showed that in both the manufacturing and the service sector, 42% of the QES indicators were down on the previous quarter, the last quarter’s results were particularly subdued. “Manufacturing export sales and orders are in negative territory and have fallen every quarter since this time last year. A likely result of Brexit and the increased costs of exporting – it is estimated that the cost of exporting has increased by approx. 40%. “For our service sector, we saw UK sales increase slightly from the last quarter, however, UK orders have been falling since the start of 2021 and continuing to do so. Since the start of 2021, Export sales and orders are negative and are still falling. “Recruitment difficulties are being reported by both the manufacturing and the service sector. “Confidence in cashflow and turnover are both low and falling. Investment in plant and machinery and training continues to be weak and indicators are dropping – particularly in the service sector. Both sectors are deeply into negative results when asked about their profitability. “Similarly, the service sector dropped in Q2 2021 and then a further in this quarter. We can conclude that the cost of living, inflation and fuel and utility costs are biting hard across all our sectors. “49% of manufacturers and 40% of the services sector are at full capacity. However, 83% of manufacturers and 56% of service industries are expecting their prices to rise in the next 3 months. For manufacturing, pay settlements, raw material prices, utility bills and fuel costs are the key challenges and for the service sector it is fuel costs and utilities. Both sectors stated their biggest concern was inflation. “Many firms are caught in the pincer movement of soaring inflation and rising interest rates. The devaluation of the pound has also added a huge cost base for businesses reliant on imports. Businesses now desperately need to see economic stability in order to rebuild the confidence to invest.”
