The British Chambers
of Commerce’s quarterly economic survey – the UK’s largest private sector
survey of business sentiment, and a lead indicator of UK GDP growth - shows
little to be cheerful about as growth flatlines and business confidence
weakens.
The results come as
all signs suggest that this year’s annual economic growth is set to be the
lowest since the financial crisis.
The slowdown in
exports in the manufacturing sector, and many services firms seemingly giving
up trying to hire new staff, should be cause for concern, warns BCC.
Ahead of the UK’s
departure from the EU, the leading business organisation urges the government
to use this month’s Budget to deliver bold action to boost investment and
confidence.
The survey, of 5,600
businesses, has revealed that the percentage of services firms attempting to
recruit is at its lowest level for 25 years, and of the firms in the sector
that did try and recruit, the percentage experiencing difficulties rose to an
all time high, since the survey began in 1989.
Also, in the
services sector, the percentage of firms reporting an increase in domestic and
export sales and orders eased slightly in the quarter.
Meanwhile in the
manufacturing sector, the balance of firms reporting an increase in export
sales and orders fell to their lowest in two years. The balance of
manufacturers expecting their prices to increase also rose, with 81% citing the
cost of raw materials as the driver of cost increases, the highest level for
seven years.
Uncertainty over
future trading conditions is continuing to act as a brake on business
investment in both the manufacturing and services sectors. The balance of firms
who looked to invest in either plant and machinery or training fell in both
sectors to their lowest level in over a year. Business confidence in turnover
and profitability also weakened in the quarter.
Commenting on the
results, Suren Thiru, BCC Head of Economics, said: “These results suggest that
the current period of below average GDP growth continued into the third quarter
of 2018.
“The manufacturing
sector remains a weak spot for the UK economy, with export activity slowing
sharply in the quarter. Brexit uncertainty and the increasing cost of imported
raw materials is weighing on the UK’s external position – further evidence that
the persistent weakness in sterling is doing more harm than good. As a
consequence, net trade is likely to have contributed precious little to UK GDP
growth in Q3.
“The sharp
deterioration of the share of firms attempting to recruit is a concern and
reflects both persistent hiring difficulties and heightened economic
uncertainty - which if sustained could materially weaken jobs growth.
“Against this
backdrop, the Bank of England’s recent decision to raise interest rates
continues to look like a misstep. With economic conditions subdued and
continued Brexit uncertainty, there should be a greater emphasis on providing
increased monetary stability alongside a marked fiscal loosening to lift the UK
out of its current low growth trajectory.”
Dr Adam Marshall,
Director General of the British Chambers of Commerce (BCC), said the new
figures reinforced what businesses up and down the country have been saying –
the uncertainty over Brexit, and the lack of bold moves to boost business at
home, are starting to bite.
“It should be a
matter of grave concern to government that sales and orders both at home and
abroad are stagnating," he added. "Weaker sterling is no longer
proving a boon to many of our exporters, while consumer spending is failing to
boost the domestic market.
“We have a vibrant
and innovative business community that wants to invest and grow, but we are
stuck in limbo while Brexit negotiations rumble on.
“The upcoming Budget
must deliver radical, decisive action to boost growth and productivity at
precisely the moment that the economy needs it most. There has never been a
more important time for the government to bolster business investment,
competitiveness and productivity, in the face of significant Brexit headwinds.
“While fewer
companies are trying to recruit, those that are hiring they are finding it
increasing challenging to fill vacancies. Many firms are deeply invested in
developing homegrown skills and talent within their own communities, however
this alone is not enough to fill the skills gaps, at all levels, that
businesses face right now, and which are set to get worse post-March 2019.
“The results from
BCC’s latest survey support our call for government to drop arbitrary migration
caps and targets, and work with business to develop an immigration policy that
supports a growing economy. We should not be slamming the door on any of the skills
we need for our companies to succeed.”
Key findings in the
Q3 2018 survey for the manufacturing sector:
- The balance of firms
reporting increased domestic sales rose two points to +24, while those
reporting improved domestic orders fell from +22 to +20
- The balance of firms
reporting improved export sales fell five points, from +24 to +19, while
the balance of those reporting improved export orders fell sharply from
+22 to +14 – both indicators are at their lowest level since Q4 2016
- The percentage of firms
expecting to raise prices over the next three months rose from 31% to 38%
- The percentage of firms
citing the cost of raw materials as the source of cost pressures has risen
sharply from 65% to 81%, the highest since Q2 2011
- The percentage of firms
attempting to recruit fell from 77% to 67%, Of these, 75% reported
recruitment difficulties. The balance of firms increasing investment in
plant/machinery and training fell in the quarter to +15 and +17
respectively
- The balance of firms
confident that turnover and profitability to increase in the next 12
months fell, from +47 to +44 for turnover and +35 to +29 for
profitability.
