ISSN 2398-4406 BCC ECONOMICS

BRITISH CHAMBERS OF COMMERCE QUARTERLY ECONOMIC SURVEY Q4 2018 The British Chambers of Commerce (BCC) Quarterly Economic Survey – Britain’s largest and most authoritative private sector business survey – based on more than 6,000 responses from firms across the UK – finds that the UK economy ended 2018 stuck in a holding pattern, with stagnating levels of growth and business confidence as a result of Brexit uncertainty and other economic pressures. The UK economy is in stasis. While it’s not contracting, it’s not growing robustly either. Throughout “much of 2018, UK businesses were subjected to a barrage of political noise and drama, so it’s no surprise to see firms report muted domestic demand and investment. In this new year, the government must demonstrate that it is ready to act to turbo-charge business confidence.

Brexit is hoovering up all of government’s attention and resources, but it’s far from the only cause of uncertainty. Given the magnitude of the recruitment difficulties faced by firms clear across the UK, “ business concerns about the government’s recent blueprint for future immigration rules must be taken seriously – and companies must be able to access skills at all levels without heavy costs or bureaucracy. Dr Adam Marshall Director General, British Chambers of Commerce AT A GLANCE Positive balance (+) = growth | Negative balance (-) = contraction

UK GDP growth and QES balance of firms reporting 0% 0% 60% improved domestic sales 2.0% -25% +25% -25% +25% 1.5% 40% 1.0% -50% +50% -50% +50% 20% 0.5%

0% 0.0% +21% +18% -75% +75% -75% +75% -0.5% -20% -1.0% -40% -1.5% -100% +100% -100% +100% QES % GDP % Balance Growth (ONS) ...of manufacturers reported ...of service firms reported -60% -2.0% improved domestic sales in Q4 improved domestic sales in Q4 2006 2008 2010 2012 2014 2016 2018 2018, down from +24% in Q3 2018 2018, down from +22% in Q3 2018 GDP Growth Service Sector QES Manufacturing QES Domestic Sales Domestic

Balance of firms reporting improved export sales 0% 0% 50%

-25% +25% -25% +25% 40%

30% -50% +50% -50% +50% 20%

10%

-75% +20% +75% -75% +14% +75% 0%

-10%

-100% +100% -100% +100% -20% ...of manufacturers reported ...of service firms reported QES % improved export sales in Q4 2018, improved export sales in Q4 2018, -30% Balance up from +19% in Q3 2018 unchanged from Q3 2018 2006 2008 2010 2012 2014 2016 2018 Manufacturing Sector QES Service Sector QES Export Sales

Percentage of firms facing recruitment difficulties 50% 50% 90% (of those attempting to recruit)

80%

70%

25% 75% 25% 75% 60%

50% 81% 70% 40% 30%

20%

0% 0% 100% 100% 10% ...of manufacturers that attempted to ...of service firms that attempted to recruit in Q4 2018 faced difficulties, up recruit in Q4 2018 faced difficulties, 0% from 75% in Q3 2018 down from 72% in Q3 2018 2006 2008 2010 2012 2014 2016 2018 (note: this is not a percentage balance scale) (note: this is not a percentage balance scale) Manufacturing Sector QES Service Sector QES Recruitment difficuties Recruitment

www.britishchambers.org.uk | @britishchambers BRITISH CHAMBERS OF COMMERCE LOOKING AHEAD The Quarterly Economic Survey (QES) examines business sentiment on a range of forward looking indicators, including investment intentions, turnover confidence, and prices. In Q4 2018, the survey results indicate an increase in price pressures facing firms, as well as weakened investment levels, and fewer firms expecting turnover and profitiability to increase over the next twelve months.

Firms facing pressures to raise prices due to

0% 0% the following factors: Manufacturing Sector -25% +25% -25% +25% Service Sector 81%

-50% +50% -50% +50%

60%

+43% +30% 45% -75% +75% -75% +75% 33% 30% 30% 25% -100% +100% -100% +100% 16% ...of manufacturers expect their ...of service firms expect their prices prices to increase, up from +38% in to increase, up from +27% in Q3 Q3 2018 2018 Pay Raw materials Financial costs Other settlements overheads Prices

Balance of firms increasing investment in training

0% 0% 50%

-25% +25% -25% +25% 40%

30%

-50% +50% -50% +50% 20%

10%

+19% +15% 0% -75% +75% -75% +75%

-10%

-20% -100% +100% -100% +100% QES % ...of manufacturers increased ...of service firms increased investment Balance -30% investment in training in Q4 2018, up in training in Q4 2018, up from +14% in 2006 2008 2010 2012 2014 2016 2018 from +17% in Q3 2018 Q3 2018 Manufacturing Sector QES Service Sector QES Investment

Balance of firms expecting to grow their workforce 0% 0% 50%

-25% +25% -25% +25% 40%

30%

20% -50% +50% -50% +50% 10%

0% +23% +20% -10% -75% +75% -75% +75% -20%

-30%

-100% +100% -100% +100% -40% QES % ...of manufacturers expect to grow ...of service firms expect to grow their Balance their workforce over the next three workforce over the next three months, -50% 2006 2008 2010 2012 2014 2016 2018 months, unchanged from Q3 2018 down from +22% in Q3 2018 Manufacturing Sector QES Service Sector QES Employment Expectations Employment

UK GDP growth and QES balance of firms confident 0% 0% 80% their turnover will increase 2.0% -25% +25% -25% +25% 60% 1.5%

40% 1.0% -50% +50% -50% +50% 20% 0.5%

0% 0.0%

-75% +41% +75% -75% +37% +75% -20% -0.5%

-40% -1.0%

-100% +100% -100% +100% -60% QES % GDP % -1.5% ...of manufacturers are confident ...of service firms are confident turnover Balance Growth (ONS) -80% -2.0% turnover will increase in the next 12 will increase in the next 12 months, 2006 2008 2010 2012 2014 2016 2018 months, down from +44% in Q3 2018 down from +38% in Q3 2018 GDP Growth Service Sector QES Manufacturing QES Confidence

www.britishchambers.org.uk | @britishchambers BRITISH CHAMBERS OF COMMERCE PRICE EXPECTATIONS In Q4 2018, the proportion of firms expecting their prices to rise increased. In the service sector, +30% expected their prices to rise over the next three months, and in the manufacturing sector, the figure stood at +43%, among the highest on record. Manufacturers overwhemingly cited the cost of raw materials as the driver of price rises. The below chart shows the georgraphical breakdown of the balance of firms expecting prices to increase over the next three months.

Scotland North East +39% +22%

North West Yorks & Humber +39% +31%

Northern Ire East Midlands +38% +40%

East of Wales England +29% +36%

London West Midlands +36% +23% South West South East +28% +37%

The ongoing impact of rising input costs continues to put pressure on our region’s manufacturers to raise their prices and pass these costs“ on to their clients. We hear from companies that some sectors are facing rising costs “ not only due to currency fluctuations but also from shortage of supply as companies look to build up stock in advance of Brexit. Mark Goldstone Head of Business Representation & Policy, West & North Yorkshire Chamber of Commerce

www.britishchambers.org.uk | @britishchambers BRITISH CHAMBERS OF COMMERCE ABOUT THE QES The Quarterly Economic Survey is the flagship economic Methodology survey from the British Chambers of Commerce. It is a prominent tool used to measure the state of business QES results are generally presented as balance figures - the sentiment and is monitored by a range of national and percentage of firms that reported an increase minus the international organisations, including the Bank of England, percentage that reported a decrease. If the figure is a plus it HM Treasury, and European Commission. indicates expansion of activity and if the figure is a minus it indicates contraction of activity. A figure above 0 indicates The BCC Q4 2018 QES is made up of responses from more growth, while a figure below 0 indicates contraction. than 6,000 businesses across the UK. Firms were questioned For example, if 50% of firms told us their sales grew and 18% between 5 and 27 November 2018. In the manufacturing said they decreased the balance for the quarter would be sector, 1,382 firms responded, employing approximately +32% (an expansion). 160,000 people. 68% (933) of manufacturing respondents were exporters. In the services sector, 4,696 businesses If 32% told us their sales grew and 33% said they fell the responded, employing approximately 910,000 people. Of balance would be -1% (a contraction). the services sector participants, 38% (1,772) were exporters.

This report has been prepared by the British Chambers of Commerce. Further information about any of the region and nation surveys may be obtained from the following: National East Midlands South East Coordinator: David Bharier Coordinator: Chris Hobson Coordinator: David Bharier (BCC); [email protected] [email protected] Contributing Chambers: British Chambers of Commerce, East Midlands Chamber (, Invicta, Hampshire, Surrey, Sussex, 65 Petty France, London SW1H 9EU & Leicestershire) Isle of Wight, Milton Keynes and (020 7654 5800) (0116 204 6606): Thames Valley Contributing Chambers: Derbyshire, Scotland Nottinghamshire & Leicestershire, South West Coordinator: Charandeep Singh , , Coordinator: David Bharier (BCC); [email protected] Contributing Chambers: Scottish Chambers of Commerce West Midlands Business West, Dorset, Cornwall, (0141 204 8337) Coordinator: Daniel Turner Somerset, and Devon [email protected] North East Black Country Chamber of Commerce London Coordinator: Jonathan Walker (01902 912334): Coordinator: Joe Richardson [email protected] Contributing Chambers: Coventry & [email protected] North East England Chamber of Warwickshire, Birmingham, Black London Chamber Of Commerce and Commerce (0191 3861133) Country, Staffordshire, Shropshire, Industry (020 7248 4444) Herefordshire & Worcestershire North West Northern Ireland Coordinator: Alex Davies Wales Coordinator: Christopher Morrow [email protected] Coordinator: Elgan Morgan Christopher.Morrow@ Greater Manchester Chamber [email protected] northernirelandchamber.com of Commerce (0161 237 4045): South Wales Chamber of Commerce Northern Ireland Chamber of Contributing Chambers: St Helens, (01633 242721); Commerce (028 9024 4113) Liverpool, North & West Lancashire, Contributing Chambers: South Wales, East Lancashire, Greater Manchester, West Cheshire and North Wales Cumbria, South Cheshire, Wirral East of England Yorkshire & the Humber Coordinator: David Bharier (BCC); Coordinator: David Bharier (BCC); Contributing Chambers: , Contributing Chambers: Barnsley & Cambridgeshire, Essex, Hertfordshire, Rotherham, Doncaster, Sheffield, Hull & Norfolk and Humber, West & North Yorkshire, and Mid Yorkshire

www.britishchambers.org.uk | @britishchambers