Chambers Quarterly Economic Survey Q2 2019: Business hits the brakes

  • Chambers Quarterly Economic Survey Q1 2019: Business hits the brakes

The British Chambers of Commerce’s quarterly economic survey – the largest private sector survey of business sentiment and leading indicator of UK GDP growth – found that key indicators of UK economic health weakened considerably in the second quarter of 2019. 

  • The balance of UK services firms reporting a rise in export sales at its lowest level in a decade
  • The balance of UK firms reporting improved cashflow turned negative for the first time since 2012 – in Norfolk since 2017
  • Investment intentions in both Norfolk’s manufacturing and services sectors at lowest level since 2016

Against a backdrop of a slowing global economy, escalating Brexit uncertainty, and rises in business costs as the UK enters a new tax year, the latest results from the survey of over 7,000 businesses, including those in Norfolk – all collectively employing around one million people – reflect a deterioration in many gauges of the UK’s economic strength. 

In the services sector, the percentage balance of UK firms reporting an increase in export sales stood at zero, its weakest level since 2009 and the orders balance turned negative (more firms reporting that orders have decreased than those reporting an increase) for the first time in eight years. In Norfolk, the service sector balances remained weak, but with a small increase to take them out of negative territory (Export sales rose from -5 to +4 and orders from -9 to +7.   The balance of firms reporting improved domestic sales and orders also weakened significantly in the quarter.  However taking East of England as a whole, the service sector balances for both home and export sales and orders fell drastically – all into negative balances – much greater than the national balances.

Among Norfolk manufacturers, the results remained mixed.  The percentage of firms reporting an increase in domestic sales and orders rose but the results remained weaker than the previous two years of results.  Export sales fell, but orders, rose slightly but overall remained weak.  The East of England manufacturers saw both home and export orders and sales all fall considerably – to much lower levels than the national totals.

The balance of Norfolk firms reporting improved cashflow – a key indicator of business health – and which has been declining over recent years, has now gone into negative territory with the exception of Norfolk’s manufacturers, who reported a slight increase from +21 to +26. 

The lack of clarity over the UK’s future relationship with the EU is continuing to weigh on investment intentions in both the manufacturing and services sectors. The balance of Norfolk firms who looked to invest in either plant and machinery or training dropped in both sectors to their lowest level since 2016. Business confidence in profitability and turnover also deteriorated sharply in the quarter.

Norfolk Chambers has been calling for an end to the relentless uncertainty, which as the latest results from the long-standing business survey highlight, has damaged the confidence and investment plans of business communities. Westminster must ensure that a messy and disorderly exit is avoided and provide firms with certainty on future conditions to prevent further declines. To kickstart strong growth in the economy, government must return its attention and energy to removing barriers to growth in the domestic environment.

Ill-timed increases in business costs – including compliance with Making Tax Digital, higher business rates for some firms, increased employer pension contribution requirements, and more – are also raising costs pressures for companies across the UK at a time when government should be looking to reduce rather than increase burdens.

Commenting on the Norfolk results, Nova Fairbank, Head of Policy at Norfolk Chambers of Commerce said:

“The findings should serve as a clear warning that the ongoing impasse at Westminster is contributing to a sharp slowdown in the real economy across Norfolk. Business is hitting the brakes – hard.

“These are some of the weakest figures we’ve seen in nearly a decade, and that’s no coincidence. The prospect of a messy and disorderly exit from the EU is weighing heavily on our local economy, and must still be avoided. The unwanted prospect of a disorderly ‘no deal’ exit, and the serious damage and dislocation it would bring, is still just days away unless Parliament acts to avoid it.

“At the same time that firms are having to enact costly contingency plans, the cost of doing business here in the UK continues to rise. This week sees a new tax year with a number of changes adding to the upfront cost of doing business in the UK, including the introduction of Making Tax Digital and changes to auto-enrolment, leaving many firms facing more bureaucracy and new expenses. It beggars belief that ministers are piling on more and more costly obligations at a time that businesses are already having to cope with Brexit and uncertainty.

“For too long Brexit tunnel-vision has distracted government from fixing the fundamentals to support growth here in the UK. We need to see an increased focus on creating the conditions for business success here at home – including concerted efforts to plug growing labour shortages, delivering an immigration policy that works for business and speeding up physical and digital infrastructure projects.”

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

“Our latest survey suggests that UK growth nearly ground to a halt in the second quarter of 2019, with increasing anxiety over Brexit and weakening global economic conditions driving a significant deterioration in almost all the key indicators in the quarter.

“The services sector suffered the more substantial loss of momentum in the first quarter with both domestic and international activity slowing sharply in the quarter. The manufacturing sector continues to struggle amid tougher global and domestic trading conditions and rising cost pressures. The marked decline in the export indicators in both sectors suggests that net trade is likely to have been a drag on UK GDP growth in Q1. The deterioration in cash flow is concerning as it can leave firms more vulnerable to external shocks, including disruptions to supply chains.

“The forward-looking indicators are disappointingly downbeat with weakening orders, confidence and investment intentions pointing to precious little growth over the coming quarters, unless substantial action is taken.”

Key findings in the Q2 2019 survey:

Norfolk Manufacturing sector:

  • The balance of firms reporting increased domestic sales rose from 0 to +26, while those reporting improved domestic orders also rose from +0 to +41
  • The balance of firms reporting improved export sales fell from +43 to +31, and the balance of firms reporting improved export orders rose very slightly from +43 to +46
  • The balance of firms reporting improved cashflow remained weak, but rose from +21 to +26
  • The percentage of firms attempting to recruit fell from 74% to 57%, the weakest since Q4 2012. Of those, 92% reported recruitment difficulties, close to its record high
  • The balance of firms increasing investment in plant/machinery rose in the quarter from +16 to +18, while investment in training fell from +42 and +23
  • The balance of firms confident that turnover and profitability will increase in the next 12 months was mixed - falling from +32 to +30 for turnover and rising from +11 to +23 for profitability

Norfolk Services sector:

  • The balance of firms reporting increased domestic sales fell from +21 to +9, the weakest since Q3 2016. Those reporting improved domestic orders fell from +15 to -2
  • The balance of firms reporting improved export sales, whilst still weak, reported an increase from -5 to +4 and export orders rose from -9 to +7
  • The balance of firms reporting improved cashflow dropped in negative territory - falling from +8 to -10
  • The percentage of firms looking to recruit fell to 53%. Of those, 79% had recruitment difficulties – a little higher than the previous quarter
  • The balance of firms looking to increase investment in plant and machinery fell from +9 to +6 (weakest since Q4 2016), and from +20 to +16 in training
  • The balance of firms confident that turnover will improve over the next year remained static, whilst those who thought profitability would improve dropped from +24 to +14
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