UK economy stuck in a rut says British Chambers of Commerce

The British Chambers of Commerce’s quarterly economic survey of 5,600 businesses indicates that this year’s annual economic growth is set to be the lowest since the financial crisis.

The survey has revealed that in the manufacturing sector, the balance of firms reporting an increase in export sales and orders fell to their lowest in two years. The balance of manufacturers expecting their prices to increase also rose, with 81% citing the cost of raw materials as the driver of cost increases, the highest level for seven years. In the services sector, the percentage of firms attempting to recruit is at its lowest level for 25 years, and of the firms in the sector that did try and recruit, the percentage experiencing difficulties rose to an all time high, since the survey began in 1989. Uncertainty over future trading conditions is continuing to act as a brake on business investment in both the manufacturing and services sectors. The balance of firms who looked to invest in either plant and machinery or training fell in both sectors to their lowest level in over a year. Business confidence in turnover and profitability also weakened in the quarter. Suren Thiru, BCC head of economics, said: “These results suggest that the current period of below average GDP growth continued into the third quarter of 2018. The manufacturing sector remains a weak spot for the UK economy, with export activity slowing sharply in the quarter. Brexit uncertainty and the increasing cost of imported raw materials is weighing on the UK’s external position - further evidence that the persistent weakness in sterling is doing more harm than good. As a consequence, net trade is likely to have contributed precious little to UK GDP growth in Q3. “Activity in the services sector slackened in Q3 with the key indicators of domestic and international activity softening in the quarter. That said, the services sector is still likely to have been the main driver of third quarter growth. “The sharp deterioration of the share of firms attempting to recruit is a concern and reflects both persistent hiring difficulties and heightened economic uncertainty - which if sustained could materially weaken jobs growth. “Against this backdrop, the Bank of England’s recent decision to raise interest rates continues to look like a misstep. With economic conditions subdued and continued Brexit uncertainty, there should be a greater emphasis on providing increased monetary stability alongside a marked fiscal loosening to lift the UK out of its current low growth trajectory.” Dr Adam Marshall, director general of the British Chambers of Commerce (BCC), added: “These figures reinforce what we are hearing from businesses up and down the country - the uncertainty over Brexit, and the lack of bold moves to boost business at home, are starting to bite. It should be a matter of grave concern to government that sales and orders both at home and abroad are stagnating. Weaker sterling is no longer proving a boon to many of our exporters, while consumer spending is failing to boost the domestic market. We have a vibrant and innovative business community that wants to invest and grow, but we are stuck in limbo while Brexit negotiations rumble on. “The upcoming 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 are: Manufacturing sector: - The balance of firms reporting increased domestic sales rose two points to +24, while those reporting improved domestic orders fell from +22 to +20 - The balance of firms reporting improved export sales fell five points, from +24 to +19, while the balance of those reporting improved export orders fell sharply from +22 to +14 – both indicators are at their lowest level since Q4 2016 - The percentage of firms expecting to raise prices over the next three months rose from 31% to 38% - The percentage of firms citing the cost of raw materials as the source of cost pressures has risen sharply from 65% to 81%, the highest since Q2 2011 - The percentage of firms attempting to recruit fell from 77% to 67%, Of these, 75% reported recruitment difficulties. The balance of firms increasing investment in plant/machinery and training fell in the quarter to +15 and +17 respectively - The balance of firms confident that turnover and profitability to increase in the next 12 months fell, from +47 to +44 for turnover and +35 to +29 for profitability Services sector: - The balance of firms reporting increased domestic sales fell slightly, from +23 to +22, while those reporting improved domestic orders rose from +15 to +17 - The balance of firms reporting improved export sales fell slightly, from +15 to +14, while those reporting improved export orders held steady at +12 - The balance of firms expecting to raise prices over the next three months was unchanged at +27% - The percentage of firms looking to recruit fell from 60% to 47%, the lowest since Q1 1993. Of these, 72% reported difficulties – an all time high for the survey - Cashflow remains a concern, with a balance of just +8 reporting improved cashflow. This falls to +5 among B2C firms - The balance of firms looking to increase investment in plant and machinery, and training, fell slightly from +8 to +7 in plant and machinery, and from +16 to +14 in training - The balance of firms confident that turnover to improve over the next year fell slightly, from +40 to +38, while those expecting profitability to improve