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Reasons to be cheerful about the economy

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inflation and deflation graph

The vast majority of UK businesses expect sales and profits to rise over the next year, according to the latest Quarterly Economic Survey (QES) from the British Chambers of Commerce.

The survey, based on responses from more than 6,000 business in the second quarter of 2018, shows that the economy continues to grow despite political instability and the lack of clarity about trading arrangements after Brexit.

All 21 indicators in the survey (see below) are in positive territory, indicating growth rather than contraction.

Meanwhile, the labour market continues to tighten with 71% of manufacturers and 63% of service businesses that attempted to recruit reporting difficulties.

The Chamber survey was published this week, just as the Office for National Statistics reported that the UK economy grew by 0.2% in the three months to May. Growth is expected to accelerate to 0.4% in the three months to June.

Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “Amid growing international uncertainty, from escalating trade disputes to oil price rises, the UK economy continues to grow defying the doom mongers.

Rob Johnston
Rob Johnston

“That said, the rate of growth is modest. Long-standing structural issues are holding companies’ growth back and preventing us from doing better.

“Lack of skilled staff remains the biggest issue for business and it’s a particular problem in Cumbria where unemployment is below the national average.

“Unless the Government gets a handle on the disarray in the training and apprenticeship system and sets out a clear immigration policy, that enables firms to cover vacancies, our economic potential will be held back.”

He called for clarity on Brexit and “bold action” to boost growth including incentives for business investment, investment in infrastructure projects and a concerted effort to cut the up-front cost of doing business.

And as Cumbria Chamber prepares to meet Bank of England Deputy Governor Sir Jon Cunliffe, who was due to speak at a Chamber lunch in Kendal today, Rob cautioned against an early rise in interest rates.

Sir Jon sits on the Bank’s Monetary Policy Committee, which sets the base rate. The committee voted by 6-3 in June to leave the rate at 0.5% but many commentators expect a rise to 0.75% when the committee meets in August.

Rob said: “The QES indicates that cost pressures have eased, which means that inflation should continue to drift downwards.

“There remains very little evidence that inflation above the Government’s 2% target is leading to higher pay settlements, with weak productivity and the high upfront cost of doing business limiting the extent wages can rise.

“Against this backdrop, the Bank of England’s recent rhetoric around raising interest rates looks ill judged.

Sir Jon Cunliffe
Sir Jon Cunliffe

“It would be better for the Bank to provide stability, by leaving rates unchanged, rather than undermining the UK’s growth prospects by raising rates and adding to businesses’ costs.

“That’s what we will be telling Sir Jon Cunliffe.”

 

Key findings in the Q2 2018 survey

The QES is the UK’s largest and most authoritative business survey. 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).

Manufacturing sector:

  • Increased domestic sales +22
  • Domestic orders +22
  • Increased export sales +24
  • Export orders +22
  • 77% attempted to recruit and, of those, 71% had difficulty doing so
  • Confidence in turnover +47
  • Confidence in profitability +35
  • Investing in plant and machinery +20
  • Investing in training +19
  • Expect to grow their workforce over the next three months +29
  • Expect prices to increase +31
  • Reporting cashflow improvements +6

 Services sector:

  • Improved export sales, +15
  • Improved export orders +12
  • Improved domestic sales, +23
  • Improved domestic orders +15
  • 60% attempted to recruit and, of those, 63% had difficulty doing so
  • Confidence in turnover +40
  • Confidence in profitability +29
  • Investing in training +16
  • Expect to grow their workforce over the next three months +23
  • Expect prices to increase +27
  • Reporting cashflow improvements +9

 

 

© Cumbria Chamber of Commerce

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