The British Chambers of Commerce (BCC) today (Thursday) publishes its Quarterly Economic Survey – the UK’s largest and most authoritative private sector business survey. Based on 7,250 responses from companies in Q4 2016, the results show the uptick in Q3 in the manufacturing sector has been sustained in the final quarter, and more service sector firms were expecting growth than they were just after the EU referendum.
Overall, the findings suggest growth in Norfolk will continue in 2017, albeit at a more modest pace.
The survey results show that having slowed in Q3 2016, growth in Norfolk’s domestic sales and orders rose considerably in the service sector for Q4, although they have not bounced back to the levels last seen in 2013. The fall in Sterling looks like it is benefitting some manufacturers, with export sales and orders continuing the rise started in the last quarter. Manufacturing exporters started 2016 in negative territory, with export order balances at -8% but they finish 2016 in a very positive position, with an export order balance at +22%.
The survey also indicates that manufacturer’s confidence in future turnover and profitability has continued to increase throughout the year. Balances for hiring expectations and investment in plant and machinery also rose this quarter, again highlighting growing confidence for Norfolk’s manufacturing firms.
Norfolk’s service sector have not been as confident through 2016. They started the year with a negative balance for export sales (-3% in Q1) and the negative balances lingered throughout the year, dropping further to -12% in Q3, but finished stronger in Q4 with a positive balance at +11%. Turnover and profitability for the Norfolk Service sector also finished positively with turnover at +35% and profitability at +20%. Both of these balances are at lower levels that they were in Q1 2016 (+55% and +41% respectively).
However, the survey found that firms in both sectors, particularly in manufacturing, are facing pressure to raise prices, principally as a result of the cost of raw materials and other overheads.
Commenting on the results, Caroline Williams, Chief Executive of Norfolk Chamber of Commerce said:
“As we start 2017, Norfolk businesses are continuing to trade through uncertainty, and are looking to seize opportunities as they arise. The QES findings suggest that business communities across Norfolk and the rest of the UK remain resilient, and many firms are expecting continued growth in the months ahead.
“Inflation has emerged in our survey as a rising concern for many businesses. Both manufacturing and services firms say they are under pressure, particularly from the rising costs, which are squeezing margins and may weaken future investment. “It is therefore vitally important that our local Councillors, together with our MPs, work hard on our behalf to bring investment into our County to help improve the business environment in order to encourage business growth.”
Key Norfolk findings in the Q4 2016 survey:
- Overall, the figures for both sectors indicate continued expansion, but at a lower level for the services sector than before the EU referendum
- There was a considerable rise in the balance of firms in both sectors expecting the prices of their goods and services to increase over the next three months, with the balance for manufacturers rising from +29% to +55%. This is the highest on record in the manufacturing sector, and the highest since Q2 2011 for manufacturing firms. This pressure is predominately as a result of an increase in raw material prices following the post-referendum devaluation of Sterling
- In the manufacturing sector, the balance of firms reporting improved export sales remained broadly steady, slightly increasing from +13% in Q3 2016, to +18%. The balance for export orders is +22%, a rise from +13% in the previous quarter. Both balances have shown a marked increase from the same quarter last year, where they both languished in negative territory (orders at -3% and sales at -8%)
- Domestically, the balance of manufacturers reporting increased sales rose from +7% to +24%, and those reporting increased advance orders rose by 10 points to +10%. The balance for services firms rebounded slightly, after falling considerably in the last quarter. Domestic sales were up from +10% to +24% and orders rose from +0% to +20%.
- The percentage of manufacturing firms reporting recruitment difficulties decreased from +86% to +78%. Whilst the service sector recruitment difficulties increased from +55% to +68%.
- In the last three months, the balance of service sector firms hiring more staff rose from +9% to +19%, although manufacturing firms reported only say a slight increased from +32% to +34%.
- Having dipped in the last quarter, the manufacturing sector are reporting higher balances of firms investing in plant and machinery, with an increasing balance from +13% in Q3 to +27% this quarter.
- More firms in both sectors are reporting confidence that their turnover will increase. The balance of manufacturers rose from +39% to +63%, while services increased from +28% to +35%. While confidence in profitability also rose from +13% to +52%, it rose from +6% to +20% in the services sector.
Commenting on the National results, Suren Thiru, Head of Economics at the BCC, said:
“Having slowed significantly in the previous quarter, the UK services sector has rebounded, although it’s not yet back to levels seen at the start of the year. Nonetheless, the service sector is likely to have been the key driver of growth in the quarter.
“Manufacturers, particularly those that export, continue to report positive indicators. However, while some firms will be benefitting from the depreciation in the value of the pound, there is currently little evidence that it is providing a material boost to overall export growth. The UK’s manufacturing base continues to struggle with long-term structural issues, with businesses continuing to report considerable recruitment difficulties. The government must work to address the skills gap, while also ensuring that businesses have access to the workers they need from overseas.
“There is further evidence that rising prices will be a key challenge to the outlook for the UK economy over the next year, with the significant rise in the cost of raw materials increasing the pressure on firms to raise prices in the coming months. While growth is likely to have remained on trend in the quarter, the UK’s growth prospects in the near-term are expected to be more subdued, weighed down by rising inflation and the uncertainty surrounding Brexit.”
