Chamber News

Monthly headlines:

• UK economy grew by 0.6% in Q4 2016 with services dominating GDP growth
• Falling value of sterling feeding through into higher inflation and squeezing real earnings
• GDP growth in the world’s two largest economies – USA and China – slowed in 2016

Although the UK economy enjoyed a strong end to 2016, higher inflation and uncertainty over the impact of Brexit are likely to mean that conditions will become more challenging in the coming months. It is vital the upcoming Spring Budget is used to tackle the escalating burden of upfront business costs.

UK economy enjoys strong end to 2016…

The first official estimate of economic growth (GDP) revealed that the UK economy grew by 0.6% in Q4 2016, unchanged from the previous two quarters. This mirrored the latest BCC Quarterly Economic Survey (QES) which revealed that output from both the manufacturing and services sectors expanded in Q4 (see chart 1). The UK economy grew by 2.0% in 2016 as a whole, slightly slower than the 2.2% recorded in 2015, but still broadly in line with historic trends. Overall, the latest GDP data confirms that the UK economy enjoyed a strong end to 2016.

…driven by the services sector…

Output rose in three of the four main industrial groupings. Service sector output grew by 0.8% in Q4 (see Chart 2) and accounted for almost all of the growth recorded in the quarter. While overall industrial production was flat in the quarter, manufacturing output rose by 0.7%. Construction sector output increase by 0.1% and agricultural production rose by 0.4% in Q4. Taken together the Q4 GDP data confirms remains that the UK growth remains unbalanced with an over reliance on services and consumer spending to drive growth.

 …but while unemployment is still falling…

In the three months to November 2016, the number of people who are unemployed dropped by 52,000, compared with the previous three-month period. In contrast, the number of people in employment declined by 9,000 over the same period, the second successive quarterly fall (see Chart 3). However, UK employment remains close to record levels. While labour market conditions could soften over the next year as economic growth slows, the high degree of flexibility in the jobs market will help limit the extent of any increase in unemployment.

…sterling weakens further…

On a trade-weighted basis (weighted average of currencies as measured by trade flows) the value of sterling rose by 0.5% in January, but is 12% lower than its pre-EU referendum level. The latest BCC QES revealed that firms are increasingly reporting the    exchange rate as a concern to their business. 56% of manufacturers felt that the exchange rate was more of a concern to their business, up from 48% in Q3 (see Chart 4). In the service sector, 31% of businesses reported that the exchange rate was a concern.  While a weak pound can make UK exports more price competitive, it can also raise the cost of imports.

…pushing up inflation…

UK CPI inflation stood at 1.6% in December 2016, the highest rate since July 2014 and up from the 1.2% rise in November. The main contributors to the increase in the rate were rises in air fares and the price of food. UK CPI inflation has increased markedly over the past year, from just 0.2% in December 2015 (see Chart 5). Significantly with factory gate prices rising by 2.7% in annual terms in December 2016, the sixth successive period of annual growth, further price rises are likely. Overall, we expect inflation to surpass the Bank of England’s 2% target in the coming months, reaching around 2.5% by the end of the year.

…and could squeeze real earnings…

In the three months to November 2016, annual earnings growth, including bonuses, rose by 0.2 percentage points to 2.8%. With consumer price inflation currently at 1.6%, pay growth outstripped inflation for the 27th successive month. However, rising inflation has meant that the gap between wage and price growth has narrowed to 1.2 percentage points, from a peak of 3.1 percentage points in Q3 2015 (see Chart 6). If this continues as we expect, real earnings could be squeezed, stifling consumer spending which is a key driver of UK economic growth.

…as UK’s trade position deteriorates…

The UK’s trade deficit was £4.2 billion in November 2016 (see Chart 7), a widening of £2.6 billion from October 2016. While exports increased by £0.7 billion, this was more than offset by a £3.3 billion rise in imports, the highest on record. Imports of machinery and transport equipment, which rose by £1.4 billion, were the largest contributors to the increase in imports. There remains little evidence that the fall in the value of the pound is boosting the UK’s net trade position. As a consequence, rebalancing the UK economy remains a major challenge.

…US growth slows sharply…

The US economy, the world’s biggest, grew at an annualised rate of 1.9% in Q4 2016, a marked slowdown from the 3.5% growth recorded in the previous quarter. Consumer spending was the main driver of growth rising by 2.5%. Business and residential investment also contribute to growth in Q4. In contrast, exports were a drag on GDP growth having dropped by 4.3% in Q4. The US economy grew by 1.6% in 2016 as a whole, the slowest growth rate since 2011. US growth was also lower than the outturn for the UK, the first time since 2014 

…and Chinese GDP growth weakens.

China’s economy, the world’s second-largest, grew by 6.7% in 2016. While this was the lowest rate of growth since 1990 (see Chart 9), it was in line with Beijing’s growth target of between 6.5% and 7%. Growth was boosted by strong consumer spending and fiscal stimulus measures. There remain concerns that Chinese GDP growth could be weaker that its official data is showing. China’s economy also remains overly reliant on debt-fuelled investment to drive growth. The size of its economy means that a slowdown in China is a major risk to the outlook for the global economy.

View the full review here

What should we make of the prospects for the UK economy just over a month into what promises to be another eventful year?

On the face of it there’s much to be positive about.

Growth has proved surprisingly resilient since last year’s EU referendum and the Bank of England’s latest forecast points to a stronger outlook for 2017 than we had predicted last November.

That more positive picture is the product of several factors, including a boost from the Chancellor’s Autumn Statement and a brighter outlook for the global economy.

It’s also been helped by the low cost of borrowing for households and businesses, plus the benefits to trade from the big drop in sterling we saw in the second half of 2016.

And so far households have not cut back their spending even though the cost of living is beginning to rise.

Perhaps it’s no surprise that, when I visit businesses around The South East and East Anglia to talk to them about how they’re doing at the moment, many are quite positive.

Construction companies report some improvement in areas such as house building, road infrastructure, student accommodation, the care sector, leisure parks and shopping centres.

In the services sector locally many companies have shrugged off the post-referendum gloom and are reporting strengthening levels of activity.

Retailers reported a decent Christmas, especially those with an on-line presence.

Overall, however, it is a mixed picture. For example, there’s some uncertainty about the post-Brexit landscape, particularly for those companies that rely heavily on international trade, and some investment plans have been affected, which could drag on growth over the coming years.

It is clear that the UK’s new relationship with the EU – and the reforms that it brings about – will determine the country’s long-term prosperity.

In the nearer term, the Brexit vote will have a big impact on how much we pay for goods and services as last year’s drop in the value of sterling pushes up import prices.

We’ve already seen prices rise, and they will continue to do so – the Bank expects Consumer Price Index (CPI) inflation to peak at 2.8% in early 2018. 

This will inevitably eat into people’s incomes, squeezing households’ spending power.

This is part of the reason why the level of GDP is still expected to be 1.5% lower in two years’ time than the Bank had projected last May.

So the Bank’s Monetary Policy Committee faces a difficult balancing act – how to keep inflation under control without risking higher unemployment.

Announcing their latest decision last week – to keep interest rates at their historic low level of 0.25% – the committee judged it was appropriate to allow inflation to remain high for a period to support growth and jobs. But they also noted that above-target inflation can only be tolerated for so long.

So they will watch the economy closely – in particular patterns in wage growth and household spending – over the coming months.

For example, if spending slows more abruptly than expected as prices rise and wages fail to keep pace, more supportive measures might be needed such as a further cut in interest rates.

But if pay growth picks up more rapidly – which might lead to further inflationary pressures in the economy – then it may be necessary to move policy in the other direction.

Last August, the Bank announced a series of policy measures to support the economy during a period of heightened uncertainty, including a cut in interest rates.

It appears that stimulus has played a part in keeping the economy ticking in recent months and some of that uncertainty has been mitigated.

This is unquestionably good news. But the Brexit journey is only just beginning, and there’ll no doubt be more twists along the way.

Assisted by the eyes and ears of the Bank’s Agents in and around the UK, the Bank’s policymakers will react as required to help steer the economy through as smooth a course as possible.

Many schools across Norfolk have already benefited from free Careers Events organised by Norfolk Chamber that inspire, enthuse and motivate students to consider employment options available to them and think about their future career progression.

Successful careers events that involved workshops, speed networking and exhibitions have been held with Sprowston Community High School, Flegg High School and Attleborough Academy Norfolk.

We are looking for more state schools who want to take advantage of free careers events organised on their behalf  for the next academic year (September 2016-July 2017).

We can tailor the event for each school and are flexible on duration, format and can provide marketing material to assist with promotion and we will liaise directly with a range of businesses to attend.

Participating schools would need to have a minimum of 250 students in Year 8 and above attend over the duration of the event.

If this sounds like something your school would like to be involved with, please contact:

Philippa Bindley, Events Manager Email: [email protected] Telephone:01603 729703

Ahead of the Chancellor’s Spring Budget on March 8, the British Chambers of Commerce (BCC) is urging the government to take action on delivering real reform to the business rates system.

The business group is calling on the Chancellor to use his last Spring Budget to support long-term business investment by taking action to deliver real reform to the business rates system. As it stands, the system creates a number of perverse incentives for business location, property improvement, and plant and machinery investment.

BCC seeks four key measures on business rates from the Spring Budget:

Abandon the fiscal neutrality principle in business rates reform – an unacceptable barrier to fundamental reform of the business rates system that is unique to that tax Bring forward the switch from RPI to CPI, currently planned for April 2020, to April 2017 Removal of all plant and machinery from the valuation of property for business rates purposes Drop proposals to restrict the ability of the Valuation Tribunal for England to order changes to business rates liabilities

Dr Adam Marshall, Director General of the BCC, said:

“The current rates system is broken, and despite attempts by successive governments to introduce marginal reforms, the fundamental unfairness of business rates remains.

“We’re calling for steps to be introduced which would help alleviate some of the excessive pressure put on businesses by rates. The policy of fiscal neutrality means there are winners and losers across the country from reforms, but limits the government’s scope to bring about fundamental change to the system. Excluding plant and machinery from valuations would remove a perverse incentive for investment, and businesses should be allowed to appeal valuations through a simpler and fairer process.

“Businesses from across the Chamber network of all sizes, sectors and locations, lament the burden of this high up-front cost, which they are forced to pay before making even a penny of profit.”

See the submission letter here

The Department for International Trade (DIT) has launched a new international trade and investment initiative. Described as the country’s largest campaign of its type, it aims to highlight opportunities for exporters and investors across the UK.

Particularly targeting international businesses and governments, the campaign is intended to highlight the UK’s creativity, expertise and innovation, and to showcase the country as a leading investment and business destination.

This is especially the case, DIT suggests, in the financial services, life sciences and sustainable energy sectors.

Building on the longstanding GREAT Britain campaign, the initiative will see advertisements placed in a variety of locations and media, including international airports (Hong Kong, New York, Dubai and others) and business publications (The Economist,ForbesandBusinessweek).

Three countries will be the main focus for the investment element of the campaign: the USA, Germany and China. While also targeting those three, the trade campaign will add Japan to the list of priority countries.

Launching the campaign, the Secretary of State for International Trade, Dr Liam Fox, said that theGREAT websitewill help more foreign companies tap into the wealth of British business opportunities and will provide them with all the advice and guidance needed to break down barriers to trading with the UK.

The website also features a searchable directory of British exporters. This “Find a Supplier” tool is intended to help international businesses to find trade partners in the UK.

In addition to promoting the UK as an investment and trade destination, the website also offers information for prospective students and tourists.

Optimism is rising among UK manufacturers, the latest quarterly Industrial Trends Survey from the CBI highlights.

The survey found over a quarter (27%) of firms claiming to be more optimistic about the general business situation than they were three months ago. With 12% of respondents saying they were less optimistic, the balance of +15% was the highest recorded by the survey since January 2015.

Based on responses from 461 manufacturers, the survey reveals that, during the three months to January, the volume of domestic orders rose at the fastest pace seen since July 2014.

It also found that export orders continued to grow, but at a lower rate than firms had anticipated.

Overall, demand is expected to grow strongly over the coming quarter, driven by both domestic and export orders, with production also expected to increase.

Commenting on the findings, CBI Chief Economist Rain Newton-Smith said: “UK manufacturers are firing on all cylinders right now with domestic orders up and optimism rising at the fastest pace in two years.”

She pointed out, however, that although the weaker pound is driving export optimism for the year ahead, it is also having a detrimental impact on costs for firms and will ultimately hit consumers.

Access to skilled labour was highlighted as a growing concern for businesses, with almost a quarter (24%) of respondents citing it as a factor likely to limit output in the coming months. That was the highest proportion recorded since July 1989.

Looking ahead, the next quarter is expected to see a rise in total new orders (+18%), with a balance of +14% of respondents expecting domestic orders to increase and +17% saying they think export orders will rise.

On Friday 3 February over 150 Norfolk businesses arrived at Holiday Inn Norwich North for an afternoon of debate and discussion with five of Norfolk’s MPs.

Sponsored by Norse, Greater Anglia and Holiday Inn, the event returned for its seventh year with MPs Sir Henry Bellingham – MP for South West Norfolk, Richard Bacon – MP for South Norfolk, George Freeman – MP for Mid Norfolk, Keith Simpson – MP for Broadland and Norman Lamb – MP for North Norfolk. This year’s event host was Carole Walker, BBC Political Correspondent and ‘Norfolk gal’.

The afternoon was split into two sections, covering a range of key topics affecting Norfolk’s business community. The first section saw Norman Lamb, Richard Bacon, George Freeman and Keith Simpson covering revolution in technology. The discussion saw cyber-crime, broadband, mobile and of course Brexit covered by a mixture of interview style with audience questions.   

Following this, our agenda lead to a tea break for delegates and MPs to get refreshed and enjoy platters of afternoon tea provided by the venue.

As the event resumed, members had the chance to hear from Brandon Lewis – MP for Great Yarmouth, in a pre-recorded video message. Brandon highlighted key growth in his constituency with the Great Yarmouth River Crossing development, and spoke of how Brexit must now become an opportunity for the UK. 

Both Richard Bacon and George Freeman returned to the stage along with Sir Henry Bellingham and Jamie Burles, Managing Director of Greater Anglia for part two of the event. Infrastructure was the main topic of questions as we heard about the A47, rail, air travel and once again the implications of Brexit.

Norfolk Chamber’s Chief Executive, Caroline Williams said: “Recently, Norfolk has become more visible to Westminster. The Norfolk Chamber has been influential in securing audiences with key politicians, at national level, and giving the region the opportunity to have its business voice heard. This was a great opportunity to hear from and be heard by some of Norfolk’s most influential people.”

The afternoon provided both members and MPs with plenty of thought. 

Photographs from the event are available to view here – Photos by Paul Harrison Photography. 

The recent fall in the value of Sterling is squeezing domestic sales margins, and increasing the cost base of UK businesses, according to the results of the British Chambers of Commerce’s (BCC) latest International Trade Survey. The findings, released today (Monday), also indicate that the weak pound is expected to push up the prices of products and services.

The results of the survey, run in partnership with moneycorp and based on the responses of nearly 1,500 surveyed businesses, indicate that the recent devaluation of Sterling is having a negative impact on the domestic sales margins of nearly half of businesses (44%). The effect is more diverse on export margins, with roughly equal levels of businesses reporting a positive (25%) and negative (22%) impact, suggesting that while the fall in value of the pound may be helping some UK exporters, it’s also hurting others.

The survey also found that 68% of businesses expect the fall in the value of Sterling to increase their cost base in the coming year. In turn, over half (54%) of companies expect to have to increase the prices of their products and services over the next 12 months.

Away from prices, the findings also show that nearly half of businesses (45%) do not currently manage currency risk. For those that do, invoicing in Sterling instead of their customer’s local foreign currency (32%) was the most popular means, followed by opening a foreign currency bank account to deal with sales and purchases in the same currency (16%), and waiting for an advantageous rate and buying using the spot market (14%). The same number of businesses (46%) don’t expect to manage their currency risk in the next six months.

Julie Austin, International Trade Manager for Norfolk Chamber of Commerce said:

“The depreciation of Sterling in recent months has been the main tangible impact that Norfolk firms have had to grapple with since the EU referendum vote.

“Our Chamber research shows that the falling pound has been a double-edged sword for many Norfolk businesses. Nearly as many exporters say the low pound is damaging them as benefiting them. For firms that import, it’s now more expensive, and companies may find themselves locked into contracts with suppliers and unable to be responsive to currency fluctuations.”

Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC), said:

 “Our survey shows that inflation is going to be an important concern for businesses over the coming year. While inflation rates aren’t high by historical standards, they are still putting increasing pressure on companies. Rising costs are squeezing margins, and forcing many firms to increase the prices of their goods and services.

“Currency fluctuations aren’t something in the UK government’s direct control, and they are likely to continue as the Brexit transition unfolds. Ministers must do everything in their power, meantime, to help businesses keep costs down and stay competitive. Alleviating many of the up-front costs facing companies should be a priority for the Budget in March – starting with the sledgehammer of business rates.”

Lee McDarby, Managing Director of UK Corporate International Payments at moneycorp, said:

“The post referendum fall in sterling has clearly had an impact on many UK businesses and, as hedging begins to expire, importers and exporters will have to adapt to the new landscape. For exporters, the move potentially allows for greater competitiveness on an international level; however, importers may now have to think of new ways of protecting their businesses from further volatility.

“The timeframe for stepping away from the European Union is long, with at least two years of negotiation as and when Article 50 is triggered; this means that companies will have to be nimble and proactive when it comes to managing foreign exchange exposure.

“The key events of 2016 have certainly caused market uncertainty and there are no signs that this will subside in 2017. On that basis we are definitely engaging more with new and existing clients who are turning to FX specialists such as moneycorp for support and assistance when it comes to managing their currency risk.”

At a recent meeting of the Chamber’s Transport & Infrastructure Group, the members reviewed both road and rail transport.

Jonathan Denby, Greater Anglia’s Head of Corporate Affairs provided an update on the Greater Anglia Rail Franchise and what it planned to deliver over the duration of its 9 year franchise. He gave an overview of what the new transformational franchise aimed to achieve, including the replacement of the entire fleet with new rolling stock and an outline of the infrastructure needed to ensure the success of the Great Eastern Mainline.

The group also reviewed Highway England’s discussion paper on their emerging strategic economic growth plan. The group were concerned that several key income generating sectors did not appear to have been taken into account when considering the areas of Highway England’s research. The agricultural sector was not mentioned, yet Norfolk is one of the largest food producers in the UK. Additionally there wasn’t a map of showing regional GDP, which Chamber Group felt would be an essential perspective in assessing how the road network should support various regions.

Nova Fairbank, Public Affairs Manager for Norfolk Chamber said:

“A formal submission was made via the Highways England online consultation, but I also had the opportunity to highlight our views at a subsequent meeting, in London together with the British Chambers, where I was able to directly feedback to Elise Lewis, the Divisional Director for Strategy & Planning at Highways England. Ms Lewis advised that the consultation document was a condensed version and the points we had made had already been taken into account. We await the final publication in Spring 2017.”

The next meeting of the Transport & Infrastructure Group will be held on 10 April.

The contract to supply the design, editing, printing and distribution of the Norfolk Chamber’s bi-monthly magazine, the ‘Norfolk Voice’ is coming up for renewal for May 2017. The contract is now out to tender amongst the Chamber membership.

For more information and to receive a copy of the tender documents, please contact Jack Edwards on Tel: 01603 729 710 or Email: [email protected] . Please note you will need to be a member to be considered.

The closing date for receipt of completed bid proposals is Friday 10 March 2017.

Holly Lane, a well-used link between the B1149 Holt Road and Reepham Road, will remain open as normal tonight (Tues 31st) after gas main diversionwork was completed last night (Mon 30th).

The closure was originally scheduled for both Monday and Tuesday nights. The diversion of gas mains and other utility servicesis needed to allow construction of Norwich Northern Distributor Road.

Hutchison Ports, which owns and operatesthe UK ports of Felixstowe and London Thamesport, has signed a Memorandum of Understanding (MoU) with the Government of Ukraine for the development of Chornomorsk Port on the Black Sea.

The MoU was signed by Volodymyr Omelyan, the Ukrainian Minister of Infrastructure, during a recent visit by the Minister to the Port of Felixstowe.

Clemence Cheng, Managing Director of Hutchison Ports Europe, said: “We are delighted to sign this Memorandum of Understanding with the Government of Ukraine to develop container terminal facilities at Chornomorsk.”

He said that Hutchison has long seen the potential for growth in container business in Ukraine and that he looked forward to working together with the Ministry of Infrastructure to realise a shared aim of developing world class port facilities to facilitate trade.

Expressing his delight that the world’s leading port operator had decided to enter Ukraine’s maritime market, Mr Omelyan said that his Government was committed to finalising the agreement and to closing the deal in 2017.

Chornomorsk is one of the largest ports on the Black Sea handling a range of cargo including containers, ferries, general and bulk cargoes.

Situated in the south-western region of Ukraine 20km south of Odessa, the port has established rail connections to the capital Kiev and has a skilled workforce already in place.