- BCC’s Quarterly Economic Survey is the first major economic survey of the quarter, and is closely watched by the Bank of England and the Treasury
- The results show that whilst the economy is still growing, it slowed in Q3. Manufacturing and export balances were down on the quarter.
- John Longworth says the results for domestic manufacturing and exports in this quarter may be the ‘first alarm bell’ to warn of slower economic growth, but this need not be the case
The British Chambers of Commerce (BCC) published the results of its Quarterly Economic Survey for Q3 2014 today, Thursday 9 October 2014. The survey, made up of responses from more than 7,000 businesses across the UK, shows that whilst the Norfolk economy is still growing, it slowed in Q3. Balances for both Norfolk’s manufacturing and service sector exports were down on the quarter, highlighting the challenges facing Norfolk exporters.
A decline in the rate of growth in Q3 for Norfolk’s manufacturing sector reinforces the BCC’s most recent Economic Forecast that predicted economic growth would slow leading into 2015. BCC Director General, John Longworth says the results for domestic manufacturing and exports in this quarter may be the ‘first alarm bell’ to warn of slower economic growth.
Key findings in the Q3 2014 Quarterly Economic Survey:
- For Norfolk manufacturing, two balances fell sharply in Q3 2014; domestic sales (+30%, down from +40% in Q2) and domestic orders (+34%, down from +42% in Q2). This is in contrast to three all-time high balances in Q2 2014. However these balances are still stronger than the East of England or national results.
- For Norfolk services, balances also fell steeply domestic sales (+37% down from +55% in Q2) and domestic orders (+36%, down from +48% in Q2). The Norfolk results were reflected in both the regional and national results.
- The balance of Norfolk manufacturing firms operating at full capacity nearly doubled from +17% to +34%. Whilst the number of Norfolk service firms operating at full capacity remained fairly static dipping by only 1 point to +38%. These figures bring the Norfolk results into line with the national results.
- All Norfolk export balances fell in Q3, for both exports and services; manufacturing export sales fell from +45% in Q2 to +38% in Q3, while service export sales dropped by a massive 61 points to +6%.
- Norfolk’s business confidence dipped considerably. However this brought both manufacturing profitability (+57%) and service sector profitability (+54%) in line with national results.
- The Norfolk manufacturing employment balance rose from +12% in Q2 to +31% in Q3. The balance for the Norfolk services sector employment decreased slightly from +34% to +31% over the same period.
- Both sectors reported difficulty in recruiting during this period with Norfolk manufacturers going from +48% in Q2 to +63% in Q3 and Norfolk’s service sector reporting an increase from +60% in Q2 to +67% in Q3.
- In the Norfolk manufacturing sector, the cashflow balance improved to +8%, 11 points below its last peak in Q3 2013. The service sector cashflow balance also increased by eight points to +22%, which is still lower that the previous recorded high of +29% in Q4 2013.
- The Norfolk manufacturing price balance (intentions to raise prices) increased by three points to +23%, whilst the price balance for the service sector decreased by five points to +19%.
Commenting on the results, Caroline Williams, Chief Executive of Norfolk Chamber said:
“Due to both sectors in Norfolk and the East of England reporting reduced order books for UK and overseas sales, this has resulted in a slight dip in confidence since the previous quarter’s strong results. Despite this note of caution, investment in plant and machinery and training remains constant and more manufacturers are reporting that they are operating at full capacity.”
“Recruitment remains an issue, with many organisations reporting difficulty in sourcing skilled staff. As skill shortages put pressure on existing wages, this may result in pay settlements becoming of greater concern. Both sectors are reporting that they anticipate a slow down in recruitment over the next 3 months. Inflation and interest rates have also been indicated as areas of concern for businesses in our region. Whilst the results are not as positive as the previous quarter, the Norfolk and East of England business communities will continue to strive towards economic growth and prosperity.
Commenting on the results, John Longworth, Director General of the BCC, said:
“The British economy has strengthened significantly since the recession but to say that strong growth cannot be sustained indefinitely is simply not good enough. To avoid sinking back into mediocrity we must steer clear of measures that dampen business confidence and press ahead with reforms to the business environment.
“As we predicted in our economic forecast, the strong upsurge in UK manufacturing at the start of the year appears to have run its course. We may be hearing the first alarm bell for the UK economy, but this need not be the case. The share of manufacturing firms across the UK operating at full capacity fell in Q3, signalling that there is more spare capacity in our production sector than previously thought. Concerns over the strength of the pound are also high and rising. Together with a worsening outlook for the eurozone, these factors reinforce the case against an early interest rate rise.
“The disappointing decline in exports highlights that we must do something radically different. Britain faces a major challenge in improving its trade performance, so we must waste no time in supporting trade opportunities to overseas markets which offer sustained growth. Only a concerted national campaign and sustained investment will allow more UK firms to look beyond our shores for growth opportunities.
“If we in Britain are serious about promoting business investment we must remove some longstanding barriers. Access to growth finance for small, ambitious firms remains insufficient. The business rates firms pay are the highest in Europe and a major disincentive for investment. We are calling on the government to freeze business rates for all companies until 2017’s planned full revaluation of premises, and perform a review and reform of the broken business rates system by 2022.”
David Kern, Chief Economist at the BCC said:
“These results point to continued UK economic growth, but the pace is easing. The signs of the slowdown are particularly noticeable in manufacturing, where all the key domestic and export balances recorded declines in Q3. The multiplier effects of a rise or fall in industrial production are important, not least for those regions of the UK whose traditional dependence on manufacturing industries remains high.
“Services remain more resilient than manufacturing, but there were disappointing declines in the service export balances between Q2 and Q3 2014. In contrast the Q3 results are positive for employment, cashflow and business confidence.
“Noticeable falls in all the export balances and increased signs of slower growth require a forceful policy response. UK growth cannot rely permanently on consumer spending, and on unsustainable current account and budget deficits. Unless exports and investment play a bigger role in growth, the recovery will stall.
“With inflation well below target and with earnings still rising annually by less than 1pc, it is clearly unjustified to endanger the recovery with a premature increase in official interest rates. To sustain growth, the MPC must reassure businesses that rates will only start edging up if and when objective circumstances require such a move. On its part, the Government must strengthen support for exporters and improve access to finance for growing businesses.”
