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 the responses of over 7,100 businesses, the survey shows that UK economic growth remained subdued in the first quarter of 2018, with Norfolk’s export performance remaining static in comparison to a strong performance at a national level. However the national figure are now in line with those in Norfolk.
In the service sector, a key driver of the UK economy, the proportion of firms reporting improved export sales and orders remained static, although overall growth remains muted and relatively unchanged from the previous three months. Consumer-facing industries continue to report tougher trading conditions than B2B firms.
Domestic factors continue to weigh on the UK economy. Fewer firms in the manufacturing sector saw an increase in domestic orders, and the balance of firms reporting an increase in domestic sales is now at its lowest level since Q1 2017. Tighter cash flow is an increasing concern for many, and the skills shortages that have plagued businesses for the last few quarters have failed to ease significantly, with those in both sectors still struggling to recruit.
Despite a small uptick in business confidence at a national level, at a local level, the picture remained stagnant. Amid a troubling domestic backdrop much more needs to be done to safeguard the future of the economy. A strong focus on fixing the fundamentals of business – reducing the upfront costs, reforming the Apprenticeship Levy, and boosting our domestic physical and digital infrastructure – will go some way to removing many of the barriers which are holding back business communities across the country.
Key Norfolk findings in the Q1 2018 survey:
Manufacturing sector:
- The balance of firms reporting increased domestic sales fell slightly from +17 to +16, the lowest since Q1 2017, while domestic orders remained still at +23.
- The balance of firms reporting increased export sales stayed the same +31 – the regional and national figures are now in line with the Norfolk results. Export orders also remained static at +26, a stronger result than the East of England figure (22+), but still slightly below the national number (+28).
- The percentage of manufacturers that attempted to recruit in the last three months also remained the same at 83%. Of those, 67% had recruitment difficulties, down slightly from 73% in the previous quarter but still high by historical standards. Of these, skilled manual labour was the leading areas of recruitment difficulties (77%).
- Confidence in turnover rose slightly from +45 to +46, whilst confidence in profitability dipped from +36 to +35. The balance of firms investing in plant and machinery rose slightly from +31 to +33.
- The percentage balance of manufacturers expecting their prices to increase fell from +54% to +49%. The price of raw materials continues to be the primary source of price pressures, with 81% reporting it as a cause (in line with the 80% last quarter).
- The balance of firms reporting cashflow improvements still remains close to negative territory at +4 – the same as the last quarter.
Services sector:
- Export sales and orders remained unchanged this quarter at +8 and +6 respectively. However, domestic sales and orders both increased at +19 for sales and +13 for orders.
- The percentage of businesses attempting to recruit fell slightly from +65 to +63. Of those, the percentage of services firms reporting greater recruitment difficulties fell from 83% to 63%. Professional and managerial roles are the leading areas of hiring difficulties (53%)
- Confidence in turnover fell from +26 to +24, as did confidence in profitability from +20 to +15. The balance of companies investing in training remained unchanged at +13, while investment in plant and machinery rose from +7 to +8.
- The balance of services firms expecting prices to increase, fell from +49% to +44%. But the balance of firms citing pay settlements as a source of price pressures rose from 45% to 47%
- The balance of firms reporting cashflow improvements remains quite low at +11 (up slightly from +10 in the previous quarter).
Commenting on the results, Nova Fairbank, Public Affairs Manager for Norfolk Chamber of Commerce said:
“What growth we see in the Norfolk economy is due principally to strong global trading conditions, rather than domestic demand, which remains muted. Uncertainty, recruitment difficulties and price pressures remain persistent concerns for businesses of every shape and size, even if short-term confidence levels remain resilient.
“Whilst the national economy saw a good performance from exporting manufacturers – which brought their results in line with those in Norfolk this quarter. The Norfolk manufacturers did not find further opportunities and their results remained the same as the previous quarter. Therefore whilst more exporters were able to reap the benefits of lower Sterling, the UK economy as a whole is treading water, rather than powering ahead.
“It’s time for the UK government to multitask and demonstrate that it can do more than negotiate Brexit. A far stronger domestic economic agenda is needed to fix the fundamentals needed for business to thrive here at home.
“At a time when Norfolk firms face steep up-front costs, the apprenticeship system is in crisis, roads are being allowed to crumble, mobile phone and broadband ‘not-spots’ are multiplying, it’s obvious that the key to improved productivity and competitiveness lies in getting the basics right.
“Sorting these business fundamentals must move to the top of the agenda – and fast.”
Suren Thiru, Head of Economics at the British Chambers of Commerce, said:
“The results indicate that UK GDP growth continued to underwhelm in the first quarter of 2018. Activity in the dominant services sector was muted in the quarter, with most of the key indicators remaining below their pre-EU referendum levels.
“Our findings suggest that cash flow is increasingly an issue for businesses who remain under pressure from a combination of high upfront business costs, subdued financing levels and unfair payment practices. Tightening cashflow is a key business concern as it can leave firms exposed to sudden changes in economic conditions.
“UK exporters enjoyed another strong quarter, boosted by the improving outlook for the global economy. There was an encouraging uptick in investment intentions and business confidence. If this trend continues, we could see overall business activity pick up in the coming quarters.
“The latest results also indicate that inflation is now on a downward trajectory, with inflation expectations easing in the quarter. Significantly, firms continue to report little upward pressure from pay settlements. While we expect interest rates to rise next month, with UK economic conditions subdued and inflation weakening, the case for a further tightening in monetary policy continues to look limited at best.”
