Chamber Economic Survey: Growth continues, but pace slackens in Q1 2015

  • BCC’s Quarterly Economic Survey is the first major economic indicator of the year, and is closely watched by the Bank of England and the Treasury.
  • Norfolk’s manufacturing and services firms reported somewhat weaker Q1 results in most areas (including exports, domestic markets and investment), but this follows strong findings in Q4 2014.
  • John Longworth says that “while it is a fact that growth in the economy continues these figures are a reminder that the path to great, sustainable, long-term growth is bumpy and challenging. As the general election approaches support for growth must be at the heart of the debate, with a much needed focus on boosting exports and business investment”.

The British Chambers of Commerce (BCC) Quarterly Economic Survey (QES) – one of Britain's largest and most authoritative private business surveys based on more than 7,500 responses from firms, employing around 850,000 people – shows that manufacturing and services firms reported slightly weaker growth for the start of 2015.

While the Q1 2015 results show weaker balances in most areas compared with Q4 2014, quarter-on-quarter trends support our view that the economy is growing at a steady rate. However, balances are lower in the key areas of export sales and investment, which are crucial to the rebalancing of our economy.

Norfolk key findings in the Q1 2015 Quarterly Economic Survey:

  • After strong increases recorded in Q4 2014, almost all the Norfolk balances for both manufacturing and services weakened in Q1. 
  • In both sectors, a number of key Q1 balances are now lower than their pre-recession levels in 2007. 
  • In Norfolk’s manufacturing, domestic balances were reduced; domestic sales (+12%, down from +13% in Q4 2014,) and domestic orders (+8%, down from +14% in Q4 2014).
  • In services, the domestic balances were mixed; domestic sales (+35%, down from +51% in Q4 2014) but domestic orders increased (+29%, up from +17%).
  • Most export balances weakened in Q1 2015; manufacturing export sales fell by 9 points to +21%, while service export sales fell considerably by 44 points to +16%.
  • Both manufacturing and services firms have lowered their investment intentions for training, as well as plant and machinery.

The only exceptions to the general pattern of quarterly falls in the Q1 balances are a small rise in Norfolk’s service sector balance for profitability confidence (+59%, up from +31% in Q4 2014) and an increased balance in Norfolk’s manufacturing firms who were operating at full capacity (+38% from +27% in Q4 2014).

Nova Fairbank, Norfolk Chamber of Commerce said:

“As the General Election draws closer, with one of the most difficult results to predict - this uncertainty is reflected in the Norfolk QES results.  Whilst the survey results are still positive, there is a large element of caution as the Norfolk business community waits to see what the impact will be of any decisions the future Government makes.

The manufacturing sector is reporting reduced sales and orders both for the UK and overseas markets and has advised of lower rates of recruitment this quarter. Confidence in turnover and profitability are also down and raw material prices are expected to increase prices.  On the more positive side, the sector expects to recruit more, cash flow is improving and more companies are operating at full capacity.

The service sector was more confident of its exporting abilities, with sales and orders both increasing, but there were mixed results for home sales and orders, with sales being reduced and orders increasing.  The number of companies trying to recruit was down and the service sector also expects to have to raise their prices.  Despite this, confidence in turnover and profitability improved.

Despite the pace slacking from the previous quarter, Norfolk’s business community will continue to work hard to succeed; to bring jobs, economic growth and prosperity to our region.”

John Longworth, Director General of the BCC said:

“It is not a huge surprise to see slightly weaker numbers at the start of the year, after a very strong fourth quarter for many firms. Crucially, our survey demonstrates that businesses remain optimistic, though they expect to grow at a slightly slower rate over the coming months.

Our conclusions are by no means a cause for alarm, but they are a salutary reminder that the UK still faces obstacles on the path to sustainable, long-term growth. Unless support for exports and business investment is placed at the heart of any future government, consumption and government spending will continue to drive an economic recovery that is unbalanced and unsustainable.

With these results in hand, our message to the politicians is simple: the national interest must come before short-term political point scoring. Given that all parties agree that the UK needs to strengthen its trade performance, and that we need to encourage our businesses to invest more, these should be issues that unite - rather than divide - the parties over the weeks ahead."

David Kern, Chief Economist of the BCC said:

“After unusually strong results in Q4 2014, almost all the national balances weakened in Q1 2015, for both manufacturing and services. But taking the QES results for the last two quarters together probably gives a more representative picture of the business outlook.

It is disappointing that most Q1 balances recorded quarterly falls, and some are lower than the 2007 pre-recession levels, however the balances still point to solid economic growth continuing in 2015. While the national balances of our survey reflect accurately the overall momentum in economic activity, they do not necessarily replicate quarterly GDP movements as published by the ONS. It would not be surprising if the ONS reports an upturn in GDP growth, or at least an unchanged position, in Q1 2015.

But the UK recovery remains unbalanced - growth is still too reliant on consumer spending and the current account deficit remains unsustainable. While a healthy consumer sector is vital for the economy’s wellbeing, much greater efforts are needed to increase the contributions of exports and capital investment to Britain’s growth. The Q1 2015 results show falling inflationary pressures, particularly in manufacturing, and easing pressures on capacity; this reinforces our view that the MPC must maintain interest rates at their current low level at least until early in 2016.”

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