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Chamber Quarterly Economic Survey: UK economic growth softened further in Q1 2016
The British Chambers of Commerce (BCC) Quarterly Economic Survey – Britain’s largest and most authoritative private sector business survey, based on over 8,500 responses from firms in Q1 2016 – suggests that growth in the UK economy continued to soften in the first quarter, with most key survey indicators either static or decreasing.
Several key indicators for the services sector – the UK’s main driver of economic growth – fell slightly this quarter, with domestic sales and orders reaching their lowest level for over three years. For manufacturing, domestic sales fell again, and remain low in historical terms.
While some manufacturing sector indicators have shown slight improvements, these increases are from a very low base. Combined with the slight weakening in some areas of the dominant services sector, the Q1 figures suggest a static picture — with potential downside risks for UK economic growth ahead.
Key findings in the Q1 2016 survey:
- Overall, the figures for both the services and manufacturing sectors indicate continued growth. However, this has remained static across many indicators, and slackened in others.
- In the Norfolk manufacturing sector there continued to be a decline in both export sales and orders (-25) and (-33) respectively. Domestic sales moved out of negative territory from (-8) in Q4 2015 to (0) this quarter, however home orders fell further to (-9).
- However, more Norfolk manufacturing firms grew their workforce in the last three months (+2), but those expecting to recruit in the next 3 months declined to (+10) from (+18) in Q4 2015.
- The Norfolk service sector showed mixed results, with domestic sales falling (+21) and orders remaining static (+11); whilst export sales and orders increased (+9) and (+3) respectively.
- In both the Norfolk manufacturing and service sectors reported less difficulties in recruiting staff.
- Confidence in turnover and profitability for both services and manufacturing remains low by historical standards
- The balance of Norfolk manufacturers intending to increase prices fell sharply, from (+23) to (0) (reversing the rise of the previous quarter). The service sector balance decreased from (+22) to (+18).
- The balance of firms intending to invest in plant and machinery and training either fell or remained static in the services sector
- Whilst the number of Norfolk manufacturers investing in plant and machinery rose, but those investing in training fell.
- Norfolk companies reported increased pressures for higher pay settlements (+37) in manufacturing, (+20) in services). In manufacturing, the level is still higher than before the financial crisis.
Caroline Williams, CEO of Norfolk Chamber said:
“Our latest QES survey results suggest that the Norfolk economy is in a holding pattern. While the majority of the picture is static overall, there are clear indications that economic growth is continuing to soften. From sales and orders, to confidence and investment intentions, many of the Norfolk business indicators are at a low ebb. However there continue to be opportunities and we will continue to support our businesses through these challenging times.”
Dr Adam Marshall, Acting Director General of the British Chambers of Commerce, said:
“The softening environment should be a wake-up call for Westminster. Further action is likely to be needed to support business confidence, encourage trade and underpin investment in the months ahead."
David Kern, BCC Chief Economist, added:
“These results are disappointing but not surprising. Although GDP growth for the previous quarter was upgraded slightly, our survey points to a slowdown in Q1 2016. This is the inevitable consequence of mounting global and domestic uncertainties, but it is nevertheless concerning that the vibrant and dominant services sector is likely to face mounting challenges in the next few years. The mediocre employment balances are a warning that we cannot afford to be complacent about the continued dynamism of our labour market.
“The improvement in the manufacturing export balances, probably helped by sharp falls in sterling, is welcome. But exports are still weak by historical standards. Our current account deficit has escalated to a record high in 2015 and is likely to remain unacceptably large in the next few years. Britain’s credit rating will be at risk, unless we make improving our trade balance and boosting our exports national priorities.
“In spite of the headwinds facing our economy, Britain has major areas of strength that can make a sustainable recovery possible, if correct policies are adopted. In this survey we report a few setbacks, but UK businesses are very resilient. Our labour market and the services sector remain dynamic, and Britain is still likely to grow faster than most other G7 economies in the next 2-3 years.”