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The British Chambers of Commerce (BCC) today (Thursday 13th April 2017) publishes its Quarterly Economic Survey – the UK’s largest and most authoritative private sector business survey. Based on the responses of over 7,300 businesses in Q1 2017, the results show the manufacturing and services sector are reporting solid growth, with both experiencing increases in domestic and export sales since the previous quarter.
The survey shows the manufacturing sector performing strongly in the first quarter of the year, particularly in the exports market, with the number of firms reporting improved sales and orders higher than in previous quarters. However, the rising cost of overheads and raw materials are presenting as a risk to growth in the medium term.
Although the performance of the services sector has not returned to historic trend levels, it is improving from its decline in the two quarters immediately following the EU referendum.
The results of the survey found that businesses are continuing to feel inflationary pressures. The percentage of manufacturers reporting raw materials as the key driver of increased prices is at the highest since Q4 2011, and in both sectors a significant proportion of firms anticipate having to raise their own prices over the next three months.
The findings indicate that while confidence in turnover and profitability is improving, investment intentions remain low. More businesses have increased their employment expectations, although both sectors are being hampered by recruitment difficulties.
Key findings in the Q1 2017 survey:
Commenting on the results, Dr Adam Marshall, Director General of the British Chambers of Commerce, said:
“In the here and now, many businesses are resilient and experiencing solid growth. Many firms tell us their short-term expectations are strong, but that the medium-term picture is far from clear.
“The rise in inflation seen since last year's EU referendum is the biggest immediate pressure facing most firms. While manufacturers have enjoyed a good quarter, they are facing higher costs at the factory gates, which increasingly translates into companies having to raise their own prices. With inflation already above the Bank of England’s target, this squeeze on firms looks set to continue in the medium term.
"The myriad of upfront costs imposed by government - including business rates, Apprenticeship Levy, National Living Wage and insurance premium tax - are all adding to the overhead costs of firms and the pressure on prices.
“Businesses also continue to report recruitment difficulties, and while we’d like to see greater investment in training across the board, without access to a sufficient talent pool, companies are restricted in their development ambitions.
"Our survey, with deep participation all across the UK, demonstrates the fact that there are longstanding structural issues here at home that we need to tackle to sustain success in the future. The competitiveness of firms depends on a bold domestic economic policy - not just a good Brexit deal."
Suren Thiru, Head of Economics at the BCC, said:
“Our latest survey suggests that the UK economy put in a solid performance in the first quarter of the year, with businesses remaining resilient.
“The services sector continues to rebound from its initial shock in the months immediately after the EU referendum, and while growth has not yet returned to historic levels, it remains a key driver of the UK economy.
“Manufacturers’ export sales are at their highest levels in recent years, with the decline in Sterling and an improving outlook for the global economy helping a number of firms who export. However, if the sector is to sustain this growth in the long-term, there must be action on the difficulties facing it, including chronic underinvestment in the UK’s infrastructure and shortages in the labour market.
“Inflation is a key risk to the UK’s growth prospects, with businesses having to manage rising costs and the pressure to raise their prices. If higher inflation squeezes consumer spending as we expect, the current strength in business activity may not be enough to prevent a period of more muted economic growth.”
View the full report here – QES Summary Q1 2017.pdf