BCC Quarterly Economic Survey: Firms Treading Water on Investment
- No overall improvement in business conditions in Q1 2024 as measured by investment, sales and cashflow.
- Levels of UK business confidence remain unchanged, with 56% of businesses expecting an increase in turnover in the next twelve months, but the percentage drops noticeably for Norfolk firms.
- Almost half of Norfolk firms are expecting the price of their goods or services to rise.
- Interest rates continue to decline as a concern for businesses, but inflation, competition and tax still a worry for Norfolk firms.
- Hospitality sector continues to struggle disproportionately, with 39% of these firms reporting a decrease in their cash flow, compared with 28% of respondents overall.
The BCC’s Quarterly Economic Survey – the UK’s largest and longest-running independent business survey – shows most firms reporting no improvement in investment levels, sales or cashflow in the first quarter of 2024. After a slight rise in Q4, levels of business confidence in Norfolk have dropped slightly. Only 54% of firms in the county expect an increase in turnover over the next year, compared with 65% last quarter. With inflation likely to remain volatile over the coming months – the data also reveals that more firms expect hikes in their own prices, with staffing costs being the main pressure. The survey conducted between 12 February and 12 March, of nearly 5,000 firms across the UK including Norfolk – 95% of whom are SMEs – also reveals business performance across different sectors varies considerably. No improvement in overall business conditions The percentage of respondents reporting increased domestic sales stayed roughly the same at 39% (up from 37% last quarter). Meanwhile 21% reported a decrease (compared to 16% last quarter) and 47% said sales had remained constant. But nationwide there were significant sectoral differences. 44% of professional service firms said they had seen a boost in sales, whereas only 27% of logistic companies and 29% of retailers saw an increase. Business confidence remains unchanged Across Norfolk 54% firms expect to see their turnover increase over the next 12 months – a notable decrease on 65% Q4 2023. Only 15% of respondents are expecting to see their financial situation worsen in the year ahead, 20% expect things to remain the same. Profitability confidence has dropped, with 51% of companies saying they expect profits to increase in the next year. That compares to 65% in Q4. 25% of respondents believe their profits will fall. Most firms still not increasing investment Economic headwinds continue to impact heavily on business investment. The majority of Norfolk firms say they haven’t increased the amount of new plant, machinery and equipment they’ve bought or rented. Only 23% reported an increase in investment (a minor rise on 20% in Q4), while 56% said levels had remained the same, 21% reported a decrease. This is in line with the national picture, but Norfolk’s over-exposure to sectoral disparities in hospitality & tourism remains a concern. At the national level these sectoral disparities in investment show in 28% of hospitality sector firms saying they have decreased investment, while 30% of manufacturing businesses have increased investment. Many firms expect their prices to rise Although inflation has slowed significantly in recent months, many Norfolk businesses are expecting the price of their goods or services to rise. 43% of respondents are predicting an increase (though this is a drop from 55% in Q4), 52% think prices will stay the same, and just 5% are anticipating a decrease. Labour costs are cited as the main cost pressure across all Norfolk businesses. However, this pressure has eased from 89% in Q4 to 75%. It is worth noting that our in our county’s manufacturing sector, this pressure is felt much more strongly with 97% citing staffing costs. Interest rates continue to decline as a concern While inflation remains firms’ biggest concern, it is slowly coming down along with concern about interest rates and we are seeing a ‘rebalancing’ of business worries. This quarter, firms citing their top concerns as interest rates, business rates, competition and corporate taxation all fall within a 30%-40% window. These figures remain high compared with the pre-Covid trend. Jack Weaver, Chief Operating Officer at Norfolk Chambers of Commerce said: “The latest results from the QES provide further evidence that the UK economy is trapped in a low-to-no growth state. “Although Norfolk business confidence remains mostly stable at the start of the year, there have been noticeable drops in certainty about turnover and profitability with most SMEs still not reporting any tangible improvement to business conditions. “The lack of investment among most SMEs is a real concern. Feedback at our monthly Engagement Groups show that recent policy announcements from government have had no real impact on investment plans. Meanwhile inflation, skills shortages, and an almost endless list of new trade barriers with the EU, coupled with a lack of clear direction on infrastructure and technology investment at the government level, have led to paralysis for many businesses. “As we head towards a general election and locally look forward to a devolution deal for Norfolk, businesses will need to see a clear long-term plan for investment and innovation from politicians of all stripes at the local and national level.” Shevaun Haviland, Director General of the British Chambers of Commerce said: “Our results are a timely reminder of the challenges businesses are facing across the UK. “We desperately need to see SMEs investing again. Government moves on rate relief, planning reform and full expensing are welcome – but they haven’t yet shifted the dial. “The recent rise in the national living wage is good news for millions of employees. But it comes at a time when labour costs pressures for business are already very high. Firms need room to breathe as they strive to pay staff fairly. “In this election year it’s vital that politicians remain laser focused on helping businesses invest, develop and grow. We encourage all parties to study our findings and understand the reality for SMEs in communities up and down the country”.
