ISSN 2398-4406 BCC ECONOMICS

BRITISH CHAMBERS OF COMMERCE QUARTERLY ECONOMIC SURVEY Q2 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 – suggests that UK economic conditions remain sluggish, despite a modest improvement in activity in the second quarter of 2018. Amid growing international uncertainty, from escalating trade disputes to oil price rises, the UK economy “continues to grow at a sluggish rate. Brexit is a key factor – but long-standing structural issues are also holding companies’ growth back.

Business needs clarity on Brexit, and a strong domestic agenda that creates a ‘Brexit hedge’ as we navigate

turbulence over the next few years. Big, bold action is needed for the UK to buck the current slow-growth trend – with major new incentives for “ business investment, confidence-boosting infrastructure projects, and a concerted effort to slash the up-front cost of doing business, which is putting consumer-facing businesses especially under intense pressure. 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 1.5% -25% +25% -25% +25% 40% 1.0%

0.5% -50% +50% -50% +50% 20% 0.0% 0% +22% +23% -0.5% -75% +75% -75% +75% -20% -1.0%

-40% -1.5% GDP % -100% +100% -100% +100% QES % Balance Growth (ONS) ...of manufacturers reported ...of service firms reported -60% -2.0% improved domestic sales in Q2 improved domestic sales in Q2 2006 2008 2010 2012 2014 2016 2018 2018, up from +17% in Q1 2018 2018, up from +20% in Q1 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%

+24% +15% 0% -75% +75% -75% +75%

-10%

-20% -100% +100% -100% +100% QES % ...of manufacturers reported ...of reported service firms -30% Balance improved export sales in Q2 2018, improved export sales in Q2 2018, 2006 2008 2010 2012 2014 2016 2018 down from +30% in Q1 2018 up from +13% in Q1 2018 Manufacturing Sector QES Service Sector QES Export Sales

Balance of firms that grew their workforce 0% 0% 40%

-25% +25% -25% +25% 30%

20%

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

0% +18% +14% -10% -75% +75% -75% +75% -20%

-30%

-100% +100% -100% +100% -40% QES % ...of manufacturers reported an ...of service firms reported an Balance increase in their workforce in Q2 increase in their workforce in Q2 -50% 2018, unchanged from Q1 2018 2018, up from +12% in Q1 2018 2006 2008 2010 2012 2014 2016 2018 Manufacturing Sector QES Service Sector QES Employment Growth Employment

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 Q2 2018, a number of these indicators point to a subdued outlook. A smaller proportion of firms revised investment upwards compared to Q1, and the proportion of businesses confident that their turnover will increase over the next 12 months also eased. Recruitment difficulties continues to be a concern for businesses, and while the proportion expecting output prices to rise has fallen, it is still high by historical levels.

Firms facing pressures to raise prices due to

0% 0% the following factors: Manufacturing Sector -25% +25% -25% +25% 65% Service Sector

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

+31% +27% 38% 37% -75% +75% -75% +75%

22% 20% 17% -100% +100% -100% +100% 15% 14% ...of manufacturers expect their ...of service firms expect their prices to increase, down from +41% prices to increase, down from +31% in Q1 2018 in Q1 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% +16% 0% -75% +75% -75% +75%

-10%

-20% -100% +100% -100% +100% QES % ...of manufacturers increased ...of service firms increased investment Balance investment in training in Q2 2018, down in training in Q2 2018, down from +18% -30% 2006 2008 2010 2012 2014 2016 2018 from +22% in Q1 2018 in Q1 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% +29% +23% -10% -75% +75% -75% +75% -20%

-30%

-100% +100% -100% +100% -40% QES % ...of manufacturers expect to grow their ...of service firms expect to grow their Balance workforce over the next three months, workforce over the next three months, -50% down from +30% in Q1 2018 up from +22% in Q1 2018 2006 2008 2010 2012 2014 2016 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 1.5% -25% +25% -25% +25% 60% 1.0%

40% -50% +50% -50% +50% 0.5% 20% 0.0% 0% -0.5% -75% +47% +75% -75% +40% +75% -20% -1.0% -40%

-1.5% -100% +100% -100% +100% -60% QES % GDP % ...of manufacturers are confident ...of service firms are confident Balance Growth (ONS) -80% -2.0% turnover will increase in the next 12 turnover will increase in the next 12 2006 2008 2010 2012 2014 2016 2018 months, down from +48% in Q1 2018 months, down from +42% in Q1 2018 GDP Growth Service Sector QES Manufacturing QES Confidence

www.britishchambers.org.uk | @britishchambers BRITISH CHAMBERS OF COMMERCE SERVICE SECTOR TRAINING INVESTMENT In Q2 2018, the balance of service firms planning to increase investment in training stood at +16%, down from +18% in Q1 2018. For B2C service firms, the balance stood at +8%, a fall from +18% in Q1 2018. The heat map below shows the breakdown of this indicator for the service sector as a whole by UK nation and region:

Scotland North East +20% +12%

North West Yorks & Humber +21% +16%

Northern Ire East Midlands +12% +27%

East of Wales England +23% +23%

London West Midlands +18% +8% South West South East +10% +21%

The regions and nations which saw the largest percentage balance of service sector firms reporting increased investment for training were the East Midlands (+27%), and Wales and the East of England (both at +23%). The regions and nations which saw the fewest service firms reporting increased investment intentions were London (+8%), the South West (+10%), and Northern Ireland and the North East (both at +12%).

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 - sentiment and is monitored by a range of national and the percentage of firms that reported an increase minus international organisations, including the Bank of England, the percentage that reported a decrease. If the figure is HM Treasury, and European Commission. a plus it indicates expansion of activity and if the figure is a minus it indicates contraction of activity. A figure The BCC Q2 2018 QES is made up of responses from more above 0 indicates growth, while a figure below 0 indicates than 6,000 businesses across the UK. Firms were questioned contraction. between 21 May 2018 and 11 June 2018. In the manufacturing For example, if 50% of firms told us their sales grew and 18% sector, 1,605 firms responded, employing approximately said they decreased the balance for the quarter would be 172,000 people. 65% (1,043) of manufacturing respondents +32% (an expansion). were exporters. In the services sector, 4,432 businesses responded, employing approximately 702,000 people. Of If 32% told us their sales grew and 33% said they fell the the services sector participants, 37% (1,633) were exporters. balance would be -1% (a contraction).

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: Shane Taylor , , Coordinator: David Bharier (BCC); [email protected] Contributing Chambers: Scottish Chambers of Commerce West Midlands Business West, Dorset, Cornwall, (0141 204 8337) Coordinator: Thomas Byrne Somerset, and Devon [email protected] North East Black Country Chamber of Commerce London Coordinator: Jonathan Walker (01902 912319): Coordinator: Thomas Wagemaakers [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