- Less than half (46%) of Norfolk firms expect their prices to increase in the next three months, down from 61% in Q1.
- Labour costs are the biggest driver of price rises, cited by 83% of businesses.
- Domestic sales fell across the board with a significant drop in the manufacturing sector
- Cashflow, turnover and profitability indicators all remain volatile when compared to Q1.
The BCC’s Quarterly Economic Survey (QES) for Q2 2023 shows that less than half of firms now plan to raise prices in the next three months as cost pressures ease. But the data also reveals that the main factor for increasing costs is now coming from wages rather than utility bills or raw materials. The survey, by the BCC’s Insights Unit, of over 5,000 firms, including those in Norfolk – 92% of whom are SMEs – also reveals business performance across different sectors varies considerably, with hospitality and retail firms suffering more widely from cashflow difficulties. The research took place between 15 May and 9 June and before the Bank of England increased the base rate to 5%. Respondents were split into 29% manufacturing and 71% services industries, with 47% exporting. Growth in business activity remains weak, with no significant improvement to sales and cashflow data. The percentage of Norfolk firms reporting increased domestic sales fell to 32% (compared to 38% in Q1). The most notable drop was in manufacturing, where sentiment fell from 39% to 26% from Q1 to Q2. Meanwhile, 32% of Norfolk firms reported no change. For cashflow, just under half of Norfolk businesses (45%) reported no change whilst 30% reported a decrease. The picture remains volatile since Q1, with noticeable variation between sectors. Pressures remain highest in the retail and hospitality sectors with 38% and 37% respectively reporting reduced cashflow, which highlights the acute challenges being faced by Norfolk’s tourism industry. Meanwhile PR and Marketing was the most positive sector with 33% reporting growth. After business confidence showed signs of a rebound in Q1 2023, it has now stalled again for some in Norfolk, but there are sectoral differences which add to the volatility. Whilst nationally there was improved confidence in turnover increasing over the next 12 months, there was no visible change in the confidence of local firms, remaining static at 44% for both Q1 and Q2. Nationally, profitability confidence also improved slightly to 44% from 42% in Q1, but it continues to remain weaker than turnover confidence. In Norfolk, the picture was much more fluid and confidence varied depending on the sector. This slightly improved national outlook was not translating through to increased business investment. The number of Norfolk respondents reporting an increase in investment in plant/equipment did not change significantly, with a marginal drop from 27% in Q1 to 26% in Q2. Nationally, over the last six years this measure has dropped as low as 9% of firms, at the start of the pandemic, but it has never gone higher than 28% (Q1 2018). Inflationary pressures continue to ease, but still remain the top concern. The percentage of firms expecting their prices to rise fell below 50% for the first time since Q3 in 2021. It has fallen from 60% of firms in Q4 2022 to 45% in Q2 2023. The figure for Norfolk businesses this quarter is broadly similar with 48% expecting prices to rise in the next 3 months. While inflation remains firms’ biggest concern, the level has dropped for the second quarter running, with 69% of firms now worried compared to 74% in Q1. However for Norfolk businesses this concern remains stubbornly high at 82%. However there has been a corresponding 5 percentage point rise in businesses worried about interest rates, increasing from 36% in Q1 to 41% in Q2. Labour costs are now the number one cost pressure for businesses. With concern around utility costs dropping around the country, 63% report these as an issue (74% in Q3 2022). Yet again the drop is less noticeable in Norfolk with 70% saying this remains a top priority. Meanwhile the number of UK firms struggling with wage costs has risen to 68% (67% in Q1) and is now the lead cost pressure. But there remain wide sectoral differences with 75% of manufacturers citing raw materials as the main factor driving price increases, while in hospitality, 85% of firms were most worried about utility costs. The retail sector was least worried about labour costs, with 56% citing it as an issue, against 64% flagging utilities and 67% raw materials. This is further evidence of ongoing volatility across sectors, but more worryingly it highlights a level of over-exposure of some of Norfolk’s most important sectors within the visitor economy – namely hospitality, accommodation, tourism and retail. Jack Weaver, Chief Operating Officer at Norfolk Chambers of Commerce said: “Once again, data from the Quarterly Economic Survey shows ongoing volatility in key business indicators in our county. “Three years of economic shocks in the form of Covid-19 lockdowns, inflation, and a new trading arrangement with the EU have placed clear obstacles in the ability of Norfolk firms to trade and grow. “Now many local businesses face further pressure following interest rate rises, as borrowing costs increase. Predictably, investment in many sectors suffers in such tough conditions. That said, there are silver linings to be found in local manufacturers still feeling able to invest in equipment and training and a slight drop in prices across many sectors. “Despite the national picture of business confidence remaining buoyant, Norfolk firms are currently less optimistic about the future, particularly around recruitment of so-called ‘unskilled’ and clerical roles. “There are tentative signs that optimism around profitability is recovering and the concerns about some macro-economic issues are easing. Given that this is relative to three years of real difficulty for Norfolk firms, we now need to see their confidence reinforced with greater clarity from the government and the opposition on a plan for economic growth.” Responding to the findings, Director General of the British Chambers of Commerce, Shevaun Haviland, said: “With inflationary pressures weakening, but wage cost concerns remaining high, our research should give the Government and Bank of England pause for thought on their next steps. “There is a fine balancing act to be struck here. Push too hard on interest rates and there is a real danger that the long-term outlook for economic growth and prosperity will be dented. “The Bank of England has itself identified the tight labour market as a key factor in the UK’s stubbornly high inflation. “Fierce competition for skills, wage demands and candidates’ expectations leave many businesses with job vacancies they can’t fill. “The Government must redouble its efforts to get people back into work and create the right conditions for employers to invest in staff training and development. Where firms cannot recruit and train from their local or national labour market, a flexible, efficient and affordable immigration system is crucial. “Further upcoming changes on trade with the EU, such as new customs requirements and charges for imports, will also add upward pressure on prices. We need to think carefully about adding in further costs for businesses when they are already under strain.” Have your voice heard for Q3 The QES often shows changes in economic trends, well in advance of other surveys. It is used by the Bank of England to set interest rates and the Treasury and the Chancellor of the Exchequer when considering national economic decisions. The survey takes less than 3 minutes to complete online, it’s multiple-choice and anonymous. Sign up here to receive a link when the fieldwork opens in August.
