There are worrying signs for Chancellor Philip Hammond as he prepares to deliver the 2018 Budget on October 29.
The latest Quarterly Economic Survey (QES) from the British Chambers of Commerce suggests growth is flatlining and business confidence is weakening.
The QES is by far the most comprehensive survey of business sentiment in the UK. The latest findings are based on intelligence from 5,600 businesses questioned between August 27 and September 17.
They show that the percentage of service businesses attempting to recruit staff is at its lowest for 25 years.
For those that are recruiting, finding the right staff has never been more problematic. The percentage reporting difficulties is the highest since the survey began in 1989.
Similarly, manufacturers’ export sales and orders are at their lowest level since the EU referendum in June 2016.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “We don’t want to be alarmist about this survey.
“All the indicators remain in positive territory. In other words, there are more businesses recruiting than there are shedding staff.
“And there are more businesses telling us they expect profits and turnover to rise than there are those expecting them to fall.
“But the trends are worrying. There has been a marked slowdown in exports in the manufacturing sector while the difficulties businesses are having in recruiting staff should be a real cause for concern.
“Added to that, we expect economic growth this year to be the lowest since the financial crisis 10 years ago.
“The Chancellor should heed the direction of travel and use the Budget to deliver bold action to boost investment and confidence.
“As a priority we’d like to see him increase the annual investment allowance from £200,000 to £1m to encourage investment.”
The survey’s findings on growth might deter the Bank of England from implementing another hike in interest rates this year.
On the other hand, the Bank’s Monetary Policy Committee will note that inflationary pressures remain with a large balance of manufacturing and service businesses expecting to raise prices.
Uncertainty over future trading conditions is continuing to act as a brake on business investment.
Rob said: “It should be a matter of concern to the Government that sales and orders are stagnating.
“Weaker sterling is no longer proving such a boon to exporters while consumer spending is failing to boost the domestic market.
“While fewer companies are trying to recruit, those that are hiring are finding it increasingly challenging to fill vacancies.
“That underlines our case for the Government to drop arbitrary migration caps and targets and work with business to develop an immigration policy that supports a growing economy.”
He added: “We have a business community that wants to invest and grow but we are stuck in limbo while Brexit negotiations rumble on.
“The Budget must deliver radical, decisive action to boost growth and productivity at precisely the moment that the economy needs it most.
“There has never been a more important time for the Government to bolster business investment, competitiveness and productivity, in the face of significant Brexit headwinds.”
Key findings in the Q3 2018 survey
QES results are presented as balance figures – the percentage of firms that reported an increase minus the percentage that reported a decrease.
If the figure is a plus it indicates expansion of activity while a minus indicates contraction.
For example, if 50% of firms told us their sales grew, and 18% said they decreased, the balance for the quarter is +32% (an expansion). If 32% told us their sales grew, and 33% said they fell, the balance is -1% (a contraction).
- Increased domestic sales +24
- Domestic orders +20
- Increased export sales +19
- Export orders +14
- 67% attempted to recruit and, of those, 75% had difficulty doing so
- Confidence in turnover +44
- Confidence in profitability +29
- Investing in plant and machinery +15
- Investing in training +17
- Expect to grow their workforce over the next three months +23
- Expect to raise prices, +38
- Improved export sales, +14
- Improved export orders +12
- Improved domestic sales, +22
- Improved domestic orders +17
- 47% attempted to recruit and, of those, 72% had difficulty doing so
- Confidence in turnover +38
- Confidence in profitability +30
- Investing in plant and machinery +7
- Investing in training +14
- Expect to grow their workforce over the next three months +22
- Expect prices to increase +27
- Reporting cashflow improvements +8
© Cumbria Chamber of Commerce