Survey shows stalling economy

The Beating Heart of the Economy

The British Chambers of Commerce’s quarterly economic survey finds that the UK economy ended 2018 stuck in a weak holding pattern, with stagnating levels of growth and business confidence as a result of heightened Brexit uncertainty and other economic pressures.

Key findings:

  • Percentage of services firms reporting an increase in domestic sales and orders drops to two-year low
  • Recruitment difficulties in manufacturing joint highest on record, services sector recruitment difficulties hover near record-high
  • Price pressures rise further for businesses, particularly manufacturers

The results underline the impact that the current levels of uncertainty are having on a stalling economy as growth in domestic sales and orders reduced, recruitment difficulties stand near record highs and price pressures persist.  In services, the percentage of firms reporting an increase in domestic sales and orders weakened to its lowest in two years. Domestic activity among UK manufacturers also moderated.

The findings highlight the extent to which labour shortages have risen in the UK as four-fifths (81%) of manufacturers that tried to recruit report difficulties in finding the right staff – the joint highest level since the survey began in 1989. In services, the level (70%) hovers close to the record high recorded in the previous quarter (72%).

The survey results indicate an increase in price pressures facing firms. The percentage of manufacturers expecting to raise prices is at its highest in a year and is almost three times higher than its pre-EU referendum average. Cashflow continues to be a concern for both sectors, with the balance of firms reporting improved cash flow remaining weak.

Suren Thiru, Head of Economics at BCC, said:

“Domestic activity in services weakened for the second successive quarter, with consumer-facing firms particularly downbeat amid subdued household spending levels and tightening cash-flow. Manufacturing had an underwhelming three months, with significant cost pressures and moderating global demand weighing heavy.

“With results showing that price pressures from wage settlements remain relatively muted, there continues to be sufficient scope to keep interest rates on hold in 2019, particularly given the significant economic and political turbulence.”

Responding to the results, Dr Adam Marshall, Director General of the British Chambers of Commerce, said:

“Throughout much of 2018, UK businesses were subjected to a barrage of political noise and drama, so it’s no surprise to see muted domestic demand and investment. With little clarity on the trading conditions they’ll face in two months’ time, companies are understandably holding back on spending and making big decisions about their futures. Given the magnitude of the recruitment difficulties, business concerns about the government’s recent blueprint for future immigration rules must be taken seriously – and companies must be able to access skills at all levels without heavy costs or bureaucracy.”

Outlook weakens for business investment

Uncertainty over the UK’s future relationship with the EU is one factors that has weakened the outlook for business investment, says the British Chambers of Commerce (BCC).

A decline of -0.6% for business investment in 2018 is expected to be followed next year with growth of just 0.1%.  The figures coincide with the repeated delays and lack of clarity on Brexit and future trading arrangements.  Many firms have hit pause on investment plans.

The BCC forecast assumes that the UK will reach an agreement in negotiations with the EU, and avoid a cliff edge in the short term. Longer-term prospects are still uncertain, but this forecast assumes that a trade deal is reached, at least at outline level. Other scenarios would lead to revisions in the next forecast.

Adam Marshall, Director- General, BCC

UK GDP growth is expected to slow to just 0.1% in the final quarter of 2018. The BCC’s forecast for 2019 GDP growth remains at 1.3% but has downgraded its 2020 GDP forecast to 1.5% (from 1.6%).  The slide in the value of the pound together with weaker confidence levels is expected to stifle the contribution of net trade and consumer spending to UK GDP growth. Inflation is now expected to be higher over the forecast period as the weakness in sterling pushes up the cost of imports.

BCC is urging Westminster to come together to provide clarity on the UK’s future relationship with the EU, and avoid a disorderly Brexit.

Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:

“The contribution of business investment to UK GDP growth is expected to be more downbeat than we previously projected as the increased uncertainty over Brexit weakens business confidence and stifles investment activity.  Consumer spending is expected to be more limited as the weaker pound drives higher imported inflation over the near term, stifling real wage growth. A weakening currency is also expected to hinder, rather than help the UK’s net trade position by increasing imported input costs while a slowing global economy will limit export demand.”

Key findings in the forecast:

  • 2018 GDP growth forecast marginally upgraded from 1.1% to 1.2%. UK GDP growth is expected to slow to 0.1% in Q4 2018 (down from 0.6% in the previous quarter). 2019 GDP stays at 1.3%, while 2020 is downgraded, from 1.6% to 1.5%
  • Business investment to contract in 2018 by 0.6% (down from 1.0%), before growing by just 0.1% in 2019, and 1.2% in 2020
  • Household consumption to grow at 1.5% in 2018, 1.2% in 2019 and 1.5% in 2020, compared to 1% in 2018, 1.3% in 2019, and 1.7% in the previous forecast.
  • Average earnings growth to outstrip inflation but by less than the previous forecast, with growth of 2.6%, 2.7%, and 2.9%, compared with CPI inflation of 2.5%, 2.4%, and 2.2%
  • BCC forecasts export growth of 1.4% in 2018, 2.3% in 2019, and 2.2% in 2020, down 1.7%, 2.7% and 2.9% respectively in our previous forecast
  • We anticipate interest rates rising to 1.25% by the end of the forecast period, with rate rises expected in Q4 2019 and Q4 2020

Budget – Detailed Reactions & Measures Outlined

For detailed information on various aspects of the 2018 Budget, see the links below.

  • Breakdown of measures announced, categorised into subjects – click here
  • British Chambers of Commerce comments on various measures – click here
  • Economic summary of key points and OBR forecast – click here

West & North Yorkshire Chamber of Commerce initial reaction is below.

“We know that a significant period of change lies ahead; that’s why the Chamber network this year, in its Budget submission, called for radical measures to enable business to meet the upcoming challenges facing the UK economy. Measures to boost investment, competitiveness and productivity are needed to embolden the UK economy ahead of and throughout the upcoming period surrounding Brexit.

“We welcome measures such as increasing the annual investment allowance, the package to stimulate high streets, including business rate relief, and encouraging SMEs to take on apprentices.  Conversely, economic growth forecasts remain disturbingly weak, so this is a concern.  It can also be argued that the statement lacked the bigger picture measures needed to drive the economy through Brexit, but some would say that’s an unreasonable criticism given the constraints in this area.

“Given our recent reports on local housing needs and employment land, we welcome the additional money for the Housing Infrastructure Fund, aswell as extending the cancellation of stamp duty for first-time buyers.  On the downside, increasing the National Minimum Wage by almost 5% puts pressure on many employers because of the need to maintain differentials within the workforce.  This is at a time when competition, price pressures and general constraints within the business community are quite testing.

“One policy decision we are still awaiting is on devolution.  There is reference in the red book to extending the Transforming Cities Fund but, until our region gets progress on a devolution settlement, we remain disadvantaged.  The Government needs to give our region the policy-making tools and powers it needs to fully contribute to the economy and decision-making.  We therefore look forward to a renewed Northern Powerhouse strategy next year.

“We will scrutinise the red book further to give a more detailed assessment to our members and the likely impact on the business community and economic growth prospects.”

Budget – Chamber Initial Reaction

“We know that a significant period of change lies ahead; that’s why the Chamber network this year, in its Budget submission, called for radical measures to enable business to meet the upcoming challenges facing the UK economy. Measures to boost investment, competitiveness and productivity are needed to embolden the UK economy ahead of and throughout the upcoming period surrounding Brexit.

“We welcome measures such as increasing the annual investment allowance, the package to stimulate high streets, including business rate relief, and encouraging SMEs to take on apprentices.  Conversely, economic growth forecasts remain disturbingly weak, so this is a concern.  It can also be argued that the statement lacked the bigger picture measures needed to drive the economy through Brexit, but some would say that’s an unreasonable criticism given the constraints in this area.

“Given our recent reports on local housing needs and employment land, we welcome the additional money for the Housing Infrastructure Fund, aswell as extending the cancellation of stamp duty for first-time buyers.  On the downside, increasing the National Minimum Wage by almost 5% puts pressure on many employers because of the need to maintain differentials within the workforce.  This is at a time when competition, price pressures and general constraints within the business community are quite testing.

“One policy decision we are still awaiting is on devolution.  There is reference in the red book to extending the Transforming Cities Fund but, until our region gets progress on a devolution settlement, we remain disadvantaged.  The Government needs to give our region the policy-making tools and powers it needs to fully contribute to the economy and decision-making.  We therefore look forward to a renewed Northern Powerhouse strategy next year.

“We will scrutinise the red book further to give a more detailed assessment to our members and the likely impact on the business community and economic growth prospects.”

Budget Submission: Measures to counter Brexit headwinds

Lobbying key decision makers

The British Chambers of Commerce has met with the Chancellor of the Exchequer ahead of the upcoming Autumn Budget.

BCC has proposed action in seven key areas:
• An exceptional ‘Brexit Investment Incentive’ – with the Annual Investment Allowance boosted to £1m to ‘crowd in’ both domestic and international investment – and stem the weakening in business investment in the face of Brexit uncertainty.

• Introduce a Business Rates Investment Incentive – ease the drag effect of this uniquely iniquitous business tax on investment by providing a 12-month delay before rates are increased when an existing property is expanded or improved and also before rates apply to a new build property.

• A commitment to no new taxes or costs on businesses for the remainder of this parliament – giving businesses the headroom to adjust to Brexit and to invest, recruit and grow.

• Deliver real UK-wide reform to the apprenticeship levy and drop SME co-funding for apprenticeships in England – to ensure that the training system works for everyone and eases the UK’s chronic skills shortage.

• Delay the roll-out of Making Tax Digital for all businesses by one year – to provide HMRC and businesses with the headroom to prepare for this major change to the way tax is collected.

• Abandon the uprating of business rates for the next two financial years for all businesses on the high street in town and city centres – to ease the financial burden on struggling businesses as they go through significant structural changes.

• Provide the funding needed to achieve full mobile coverage along transport corridors (road and rail) – a crucial step to improving digital connectivity and productivity for businesses that need to communicate with new and existing customers, suppliers and employees.

If these targeted, affordable measures are delivered it would drive greater investment in people, property, infrastructure and capital, lifting both UK growth and productivity.

A BCC spokesperson said: “The ‘business as usual’ approach which has characterised recent fiscal events is no longer sufficient in the face of a sluggish economy and continued Brexit uncertainty. Therefore, we believe that the focus of the Autumn Budget 2018 must be on radical measures to bolster business investment, competitiveness and productivity in the face of Brexit headwinds – without which business communities across the UK will be ill-equipped to overcome the significant period of change that lies ahead.”

The People’s Powerhouse Convention 2018

Collaborate. Debate. Network. Share. Inspire!

Following the huge success the 2017 event, this year’s Convention will continue to inspire and lead change in the North. The objective of this event is to bring people together for meaningful dialogue, sharing and action – be they practitioners, policy makers, opinion formers, young people, businesses, MPs or community groups.

This years event takes place on Tuesday 20 November, 09:00 – 16:30, Northern Commercials Stadium Conference & Events.

Themes for the event are:

  • How do we create a more inclusive North where all our diverse voices and strengths are represented?
  • What does a good economy look like for us all?
  • How can we ensure people are involved locally in the design and delivery of services?
  • How can we value all our places, not just the big cities?
  • What more can we do to collaborate, share and learn about what’s working, together?

If you want to be part of this year’s big conversation, if you’re up for celebrating the great things that are already happening and you have ideas about how better lives for all of us in the North can be achieved – this is your event!!

This is a great opportunity for you to raise awareness of your work, organisation, campaign or service….and genuinely connect, collaborate and create…helping to shape the kind of North we all want to live and work in. In addition to registering as a delegate, you can send us your ideas for sessions you want to lead by clicking here peoplespowerhouse.org.uk/index.php/events/2018-convention

Speakers Confirmed:

  • Andy Burham, Mayor of Greater Manchester
  • Edna Robinson, Chairman, People’s Powerhouse (also Big Life Group, Trafford Housing Trust)
  • Susan Hinchcliffe, Leader Bradford Council and chair of West Yorkshire Combined Authority
  • Nazir Afzal OBE, former Chief Crown Prosecutor
  • Neil McInroy, Chief Executive, CLES
  • Tony Walsh (Longfella) our Poet In Residence for the day – and there will be delegate involvement!

BCC: Growth expectations downgraded

The Beating Heart of the Economy

The British Chambers of Commerce (BCC) has downgraded its growth expectations for the UK economy, forecasting GDP growth for 2018 at just 1.1% (down from 1.3%). The BCC has also downgraded its GDP growth forecast for 2019 from 1.4% to 1.3%. Our latest forecast implies that by 2020 the UK economy will have experienced its second weakest decade of average annual GDP growth on record.

The downgrades to our forecast for GDP growth in 2018 and 2019 have been largely driven by a weaker outlook for trade and investment. Exporters face more subdued growth given continued Brexit uncertainty and the expected slower growth in key markets. As a consequence, net trade is expected to make a negative contribution to GDP growth over the forecast period.

The outlook for investment is more subdued than in our previous forecast with persistent economic and political uncertainty expected to increasingly weigh on investment intentions. Business investment growth is expected to be weaker across the forecast horizon than in our Q2 forecast. The high upfront cost of doing business in the UK and the ongoing uncertainty over the UK’s future relationship with the EU are expected to continue to stifle business investment.

The labour market is expected to continue to be a source of strength for the economy, with the unemployment rate forecasted to remain close to its record low. However, in such a tight labour market, businesses will continue to face significant skills gaps, undermining their potential to grow. At the same time, workers are unlikely to experience meaningful real wage growth as the gap between pay and price growth is forecast to remain negligible.

If realised, the leading business organisation’s latest forecast suggests that the UK economy remains lethargic. Brexit uncertainty and the on-going failure to fix domestic fundamentals – stronger labour supply, digital and physical connectivity, and more – are hurting the UK’s growth prospects. To bolster stronger growth, the government must provide precision on the nature of any future relationship with the EU and answer the practical questions that firms have – a ‘messy’, disorderly Brexit will only add to the uncertainty that already exists. The BCC has outlined and is assessing the key questions that businesses need clarity on in order to take decisions, invest and plan for the future.

Alongside the forecast, the BCC warns the Prime Minister and Chancellor that the government’s upcoming Autumn Budget cannot be a ’business as usual’ affair. Ministers must go all-out to incentivise and kickstart business investment at a crucial turning point for the UK.

Key points in the forecast:

  • UK GDP growth forecast for 2018 is downgraded from 1.3% to 1.1%, and from 1.4% to 1.3% for 2019, before rising to 1.6% in 2020 (unchanged)
  • Growth in household consumption for 2018 is expected to slow to 1.0%, before rising to 1.3% in 2019 and 1.7% in 2020, largely unchanged from the previous forecast
  • Average earnings growth will slightly outstrip inflation over the forecast period, with growth of 2.6%, 2.8%, and 3.0%, compared with inflation of 2.5%, 2.3%, and 1.8%
  • BCC forecasts export growth of 1.7% in 2018 – down from 2.8% in the previous forecast – this is due to revisions of previous data. We expect a negative contribution from trade over the forecast period
  • Total investment growth of 1.4% in 2018 (down from 1.8% in the previous forecast) with growth of 1.4% in 2019 and 1.5% in 2020
  • Business investment is expected to remain weak, with growth of 1.0% in 2018, 1.2% in 2019, and 1.4% in 2020
  • We now anticipate interest rates rising to 1.25% by the end of the forecast period, with rate rises expected in Q1 2019 and Q2 2020.

 

Request for survey completion

Please spare three minutes to complete the latest quarterly economic survey (QES).

Click here to go to the online survey.

The survey provides a finger on the pulse of the region’s economy; the Chamber also makes extensive use of the findings to help guide policy-makers and ensure that regional business sentiment influences decision-making. By completing the QES you are helping us to make the case for policies that promote local business growth and support this region’s economy.

Past survey responses have helped influence investment into broadband and transport infrastructure, direct funding into skills programmes, advised on regional growth funds and targeted support for exporters.

Survey responses remain confidential and respondents’ details are not passed on to third parties.

The survey closes on Tuesday 18 September.

Don’t forget – please complete the survey here.

York Property Forum: Mon 3 Sep

York businesses are invited to the next Property Forum to hear about new opportunities in the sector.

Speakers from higher education and the Local Enterprise Partnership will set out ideas and plans that will help drive forward the sub-region’s economy over the next few years.

The five-year capital investment plan of York St John University will be demonstrated by Rob Hickey, Executive Director for Innovation & Growth; while Chief Operating Officer at York, North Yorkshire & East Riding LEP, James Farrar, will spell out how he sees the current review helping businesses, once the changes are implemented.

Mike Cartwright from the Chamber’s policy team said:

“As always, we are determined to help push forward the region’s economic growth by supporting local business communities.  At a time of growing concern with Brexit or attention to outstanding issues such as devolution and skills shortages, we have to look at all areas where that support and growth can happen.  Universities are not only promoters of higher education, but also (often) owners of significant land and property; so hearing from Rob will be useful for many businesses.  We also need to liaise closely with the LEP to make sure they hear the business voice, so this is a good platform for our members to ask questions of key influencers in the local economy.”

The event takes place on Monday 3 September at York’s Grand Hotel (5-7pm); £15 Chamber members, £30 non-members.  Call 01904 210010 for more information or email events@wnychamber.co.uk

Survey: Businesses are cautiously confident

Evidence that companies are looking to manage their costs more closely has emerged from a new survey.

West & North Yorkshire Chamber of Commerce, which surveys its members every three months on economic trends, says that more companies have decided to hold onto their cash in recent months.

The Chamber says that, although sales growth remains strong in both domestic and foreign markets, more firms are taking a “cautious and sensible” approach to Brexit.  Increasing profits are also a good sign of confidence in the regional business community, but investment plans have stuttered.  Recruitment difficulties continue for some, though, with vacancies left unfilled due to a lack of suitable candidates coming forward for roles.

Mark Goldstone, Head of Policy & Representation at the Chamber, said: “Investment in training gives me cause for concern, as our results this quarter show this at close to its lowest level in years. These results, combined with the near collapse in companies taking on apprentices, should be a wake-up call to government to review the reforms introduced in the last year. Businesses want to make the system work, and train and up-skill people of all ages, but the system as it stands is in need of reform. The government needs to listen to the business community, and work with us to ensure more people have access to high-quality apprenticeship training, in order to make the new system work better for everyone.”

A summary of the key survey points follows:

Domestic sales and orders

Sales and orders remain relatively strong in home markets.  Fortunes look decidedly more positive than the lows of two years ago.  This time around, service sector firms saw a slight dip in sales but order books are buoyant.  Manufacturers were boosted by better sales.

Export sales and orders

Export sales continue their upwards trajectory in the last quarter from their historic low point in 2016. All sectors reported increases in the last three months.

Employment

Labour market concerns continue, with many firms reporting difficulties in finding suitably qualified and/or experienced candidates to fill roles. Fewer manufacturers than last quarter expect their workforce levels to increase next quarter, while more in the service sector expect that to be the case.

Investment

Investment intentions slowed a little over the last quarter for both training and capital.

Business confidence

Confidence remains at a good, solid level, despite member feedback about investment above and further on in the report.  Turnover and profit expectations are both substantially higher than they were two years ago and, although the service sector dipped a little this time around, confidence is generally quite good overall.