The latest national Quarterly Economic Survey results show a mixed picture, with an improved short-term performance in the manufacturing sector set against a further slowdown in growth in the services sector.
The British Chambers of Commerce survey – the first since the EU referendum – shows that manufacturers enjoyed improved domestic and export sales compared with the previous quarter, with some benefitting from sterling’s recent fall. Meanwhile, the balance of service sector firms reporting improved domestic and export sales was at the lowest level seen since 2012. The survey’s results suggest that the UK economy is still growing – albeit at a lower level than before the referendum – and supports the BCC’s forecast for growth of 1% in 2017.
NOTE: The West & North Yorkshire results will be published on Thursday 13 October.
The survey suggests that near-term uncertainty following the vote to leave the European Union has led businesses to lower their expectations for hiring, turnover, and investment in plant, machinery, and training.
As a result, the BCC is urging the government to use next month’s Autumn Statement to boost business confidence – by giving the green light to key infrastructure projects, and by introducing measures that ‘crowd in’ business investment and job creation.
Key findings in the Q3 2016 survey:
• Overall, figures for manufacturing and services indicate growth, but at a slower pace than pre-referendum
• In manufacturing, the balance of firms reporting improved exports rose to +17, from +9 .
• The balance reporting an increase in advance orders is +12, up from +5. One factor may be the fall in sterling, which has made some UK manufacturers more competitive.
• Domestically, the balance of manufacturers reporting increased sales rose to +13 from +9, although those reporting increased advance orders fell slightly, to +7 from +9
• In the last three months, the balance of manufacturers hiring more staff rose three points to +15 from +12, although in the services sector the number fell five points to +14 from +19
• Fewer firms in both sectors expect to take on staff in the next year. For services the balance for firms (+15, down 13) is the lowest since Q1 2013
• In the services sector, many balances saw a decrease on the previous quarter
• The balance of services firms reporting improved domestic sales fell sharply to +9 from +24, while the advance orders balance fell from +20 to +8 – indicating a significant slowing of growth
• On services exports, the balance of firms reporting improved sales fell from +11 in Q2 to +8 in Q3 2016, while the balance of firms reporting an increase in advance orders fell further, from +13 to +5
• Firms in both sectors have reported that the exchange rate is a greater concern to their business than three months ago, with 30% of services businesses (up from 15%) and 48% of manufacturers (up from 35%).
Commenting, Dr Adam Marshall of BCC, said:
“While many manufacturers have seen something of a bounce this summer, the UK’s services sector has slowed significantly, and our data suggests that slower growth is likely in the months ahead. Although it is important not to take one quarter’s figures in isolation, our survey does show that growth has slowed further since the EU referendum. Boosting business must be a key task for government in the months ahead, particularly as forward confidence on turnover and profitability has flagged for firms across the UK.
“The Prime Minister has given businesses some clarity on the timetable for Article 50, and on short-term regulatory and legal issues. This is helpful, but needs to be followed up by a firm demonstration that the government has a clear and coherent strategy to defend the UK’s economic and business interests in the negotiations that lie ahead.
“Firms are concerned over investment, hiring, and profitability. The Chancellor’s Autumn Statement is a crucial opportunity to incentivise business investment and overseas trade. Final and irrevocable decisions on infrastructure projects, both big and small, would also boost business confidence and support investment all across the UK.”