By Marcus Leach
The British Chambers of Commerce’s latest Quarterly Economic Survey (QES), released today (Tuesday) highlights the risks facing Britain's recovery.
The new survey, comprising 6,700 responses from businesses across the UK, shows that while many balances are still in positive territory, indicating growth, this is weaker than in previous quarters.
Figures for the domestic market, exports, business confidence, cashflow, and investment in plant and machinery have weakened over the last quarter.
• The Q3 QES results point to a deterioration in the economic situation, with concerning signs of stagnation in the domestic economy. Cashflow remains a real concern for businesses, indicating they are under financial pressures.
• Disappointing balances for exports, and for investment in plant and machinery, suggest that the much-needed rebalancing of the UK economy is not yet occurring.
• The domestic balances in the Q3 survey signal minimal growth or stagnation, with declines in both manufacturing and services.
• The manufacturing balance for home deliveries fell to +3% (from +18%) the lowest since Q1 2010, and in services to 0%, from +10%.
• For forward-looking home orders, in manufacturing the balance fell 13 points to -4%, the worst level since Q4 2009, and in services dropped 12 points to -3%, the worst level since Q4 2010.
• For both manufacturing and service sectors export balances worsened in Q3. Exporting activity among manufacturers is stronger than in services, and also outperforms domestic activity. The export figures, which have fallen to weak levels last seen in 2009, show that the rebalancing of the economy towards exports is not happening.
• While they remain in positive territory, export sales for the last three months fell eight points in manufacturing (to +18%), and by 14 points in services (to +4%). Asked about future orders, the export orders balance for manufacturing was the worst level since Q3 2009 (down eight points to +14%). In the service sector, businesses reported a contraction, with a balance of -2% (down 18 points, the weakest level since Q2 2009).
• Figures for the last three months showed a fall in the balance of manufacturers expanding their workforce, and in services there was only a marginal increase.
• Firms in both sectors do not seem to be much more optimistic about future recruitment. In manufacturing the employment expectations balance was down five points to +10%, and in services down six points to +6%.
Cashflow and price pressures
• Businesses are still facing real difficulties in managing cashflow (the movement of cash in and out of the business). Both balances are in negative territory, with a fall in manufacturing (down seven points to -8%), and no change in services, at -6%.
• Despite balances falling since the last quarter, businesses’ intentions to raise prices are still relatively high (likely due to rising raw material costs). The balance of manufacturing firms reporting pressure to increase prices fell seven points, to +31%, and in services fell five points, to +22%.
Business confidence & investment
• Business confidence among manufacturers fell in the last quarter. The balance measuring manufacturers’ confidence in turnover fell by seven points (to +33%), and in profitability the balance was down six points to 16%.
• In the service sector, the turnover confidence balance fell six points to 24%, and profitability confidence stayed unchanged, at +10%, still a disappointingly weak level. In both sectors, the level of confidence in turnover and profitability is inadequate.
• While both service sector and manufacturing businesses intend to invest slightly more in training, investment in plant machinery fell in both sectors.
“The results of our latest survey are concerning, but not entirely surprising," John Longworth, Director General of the BCC, said.
"Many of the balances are in positive territory, but they are not as strong as we'd like to see. The survey shows the real risks facing the economy and the need for the government to act now in putting business growth at the heart of all its policies. For example, cashflow remains a real concern for businesses, indicating they are under financial pressures. Many businesses are faced with unfavourable payment terms and a lack of access to capital.
“The pace of the UK recovery will remain slow. We can avoid a recession, but this relies on the government making some tough policy choices. While it is imperative that the government perseveres with its deficit-cutting plan, there must be a significant reallocation of priorities within the overall spending envelope. We need a much greater focus on those policies that will help businesses expand, take on more staff, export and invest.
“Businesses need continuous reassurance that there is a plan for fiscal stability and a clear road map which will steer us towards a strong recovery. Government must recognize that business is good for Britain, and put in place measures to bolster confidence and support those companies that have the potential to grow. That includes a commitment to a Plan A+ for growth, with alternative paths at the ready in case of further shocks from foreign shores.”
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