Business leaders in Yorkshire remain confident on future earnings and revenues, despite widespread pressures from inflation and interest rates, new research from West & North Yorkshire Chamber of Commerce shows.
Data in the Chamber’s Quarterly Economic Survey for the second quarter of 2023 shows that the surge in optimism seen since the start of the year has persisted.
With inflation remaining sticky and interest rates continuing to creep up, the impact on business performance remains acute, appetite for investment remains virtually zero, with both domestic and export sale levels remaining volatile.
However, the Chamber’s research indicates that 52 per cent of manufacturing firms and 49 per cent of service sector companies still expect to grow their profits during the next three months.
The upward trend comes after the cost-of-living crisis and the mini-budget in September slashed optimism levels across the board.
Amanda Beresford, chair of West & North Yorkshire Chamber of Commerce, said: “Life has not become any easier for businesses since the last Quarterly Economic Survey was published.
“Yes, inflation finally started to decline in April but remains unchanged for May at 8.7 per cent, still an eye-watering level. Interest rates continue to nudge ever upwards having now reached a 15-year high. And the labour market remains challenged.
“However, it is clear from the latest fieldwork that despite the near continuous headwinds, Yorkshire’s business community is maintaining a largely positive outlook. The level of firms expecting to increase their profits in the next three months has stayed roughly the same as the previous quarter and, while appetite for investment remains very low, there are positive signs of companies still wanting to take on new personnel, with the amount of firms looking to reduce their headcount very small indeed.
“Yorkshire’s business community is both richly diverse and resilient. It will continue to weather the storm and, as soon as the shackles to investment are removed, will continue to do world-leading work.”
Domestic sale levels remained a mixed bag across sectors, with the service sector having posted a slump while manufacturers reporting a rebound. Export sales was a reversed picture, with service sector firms reporting an upsurge while manufacturers continuing to struggle. Both service and manufacturing firms were most likely to report static activity, hinting at pent up demand. Issues around exchange rates persist due to global volatility.
While most firms expect to keep their staffing levels at their current levels, the level of firms expecting to cut their workforce is now in single digits for both sectors. The labour market remains tight and volatile, with vast swathes of the workforce yet to return following the pandemic.
Appetite for investment is still very low. Overheads, global instability and interest rate rises have meant firms are reluctant to spend on their workforce or equipment. Just one in five firms expect to spend on these areas, with more than two thirds expecting to keep things static.
The march of rising interest rates was a huge concern in Q2, particularly for service firms who showed a significant rise in reporting it as a factor than the previous quarter. Worries around inflation and raw materials remain high but have fallen from the previous quarter, hinting that the worst may be over on in terms of rising rates. The cost of doing business remains high and presents huge challenges.
Martin Hathaway, managing director of the Mid Yorkshire Chamber of Commerce, said: “Rising interest rates and inflation concerns have had a huge impact on businesses from all sectors over the last quarter, meaning that confidence and investment have both taken a knock.
“Despite the somewhat bleak landscape, firms here in the mid Yorkshire region are confident that future profit growth is coming. The attitude is very much looking ahead to greener pastures, but we need to ensure the economy and infrastructure is equipped to power this growth.”
Director General of the British Chambers of Commerce, Shevaun Haviland, said: “With inflationary pressures weakening, but wage cost concerns remaining high, our research should give the Government and Bank of England pause for thought on their next steps.
“There is a fine balancing act to be struck here. Push too hard on interest rates and there is a real danger that the long-term outlook for economic growth and prosperity will be dented.
“The Bank of England has itself identified the tight labour market as a key factor in the UK’s stubbornly high inflation.
“Fierce competition for skills, wage demands and candidates’ expectations leave many businesses with job vacancies they can’t fill.
“The Government must redouble its efforts to get people back into work and create the right conditions for employers to invest in staff training and development. Where firms cannot recruit and train from their local or national labour market, a flexible, efficient and affordable immigration system is crucial.
“Further upcoming changes on trade with the EU, such as new customs requirements and charges for imports, will also add upward pressure on prices. We need to think carefully about adding in further costs for businesses when they are already under strain.”