Chief Executive Officer, Greater Birmingham Chambers of Commerce
Businesses across Greater Birmingham continue to demonstrate an underlying resilience despite the challenging fiscal pressures many face on a daily basis. Export sales indicators revealed most improvements compared to last quarter, with a notable difference between manufacturing and service sectors. Turnover and profitability projections along with domestic sales activity remains broadly in line with the activity we saw recorded at the start of the year. Recruitment confidence has diminished slightly, though recruitment difficulties continue to plateau which is a much-welcomed trend given the high levels of uncertainty businesses faced in this area last year.
Price pressures have eased, particularly for manufacturers, reflecting broader economic stabilisation and the continued fall in businesses’ concerns about inflation, although this still remains a key point for consideration for one in four firms across all sectors. Investment levels have largely remained steady and we expect an improvement across a number of areas as national indicators related to GDP and inflation continue to improve. With the general election out of the way, businesses will be looking forward to the new Government setting out their plans to drive economic activity, unlock investment and raise productivity levels – all in all, a period of stability to give businesses the platform they need to invest and grow would be an ideal tonic to the uncertainty they’ve faced for a number of years. As always, the GBCC will be working closely with stakeholders across the board to ensure the voice of business remains at the heart of policy making both here and in Westminster.
PROFESSOR HARRIS BEIDER
Pro Vice-Chancellor, Engagement, Enterprise and Innovation Engagement, Birmingham City University
The Q2 survey provides an indication that economic pressures are starting to ease across the regional business base. The proportion of firms expecting the price of goods and services to increase over the next 3 months, for example, fell from 46% in Q1 to 38% in Q2. Notwithstanding this, competition became an emerging concern for one in four businesses (26%) compared to only 16% at the same time last year. Whilst the same number of firms also indicated concerns about inflation, this was the lowest figure on record since Q3 2021.
Despite a slight fall (-3 percentage points) in the number of firms expressing confidence that their turnover will increase over the next year, 55% of respondents expected to see an increase in their profitability over the next 12 months, compared to 49% the previous quarter. Further, domestic sales remained stable, whilst 52% of firms were found to have been working at full capacity at the point of responding – an increase of +5pp over the past three months.
In terms of employment, recruitment rates declined in Q2 with just 29% of firms reporting an expansion in their workforce over the past three months (-7pp from Q1). Similarly, just 54% of business respondents attempted to recruit new staff across the last quarter, compared to 61% this time last year. More positively however, although still of concern, the proportion of businesses experiencing recruitment difficulties fell to 63%, in comparison to the 72% recorded at this point last year.
DOMESTIC DEMAND
THE BALANCE SCORE FOR DOMESTIC SALES IS 64, WHICH IS 1 POINT LOWER THAN LAST QUARTER.
In Q2 2024, 44% of businesses reported an increase in their UK sales, which is one percentage point lower than last quarter and 5 percentage points lower than this time last year. 39% state that domestic sales have remained at the previous quarter’s levels, and 16% reported a decrease. 41% of manufacturers saw an uptick in UK sales volumes, alongside 45% of services firms. Similar trends can be observed when looking at UK orders and advance bookings – 42% of businesses across all sectors reported an increase in UK their UK sales in Q2 2024, in contrast to the 45% recorded last quarter. In terms of the sectoral breakdown, 46% of manufacturers increased their domestic order volumes in comparison to 42% of services firms.
Looking at economic growth across the UK as a whole, monthly real gross domestic product (GDP) is estimated to have shown no growth in April 2024, following growth of 0.4% in March 2024, and real gross domestic product is estimated to have grown by 0.7% in the three months to April 2024 compared with the three months to January 2024. Services output grew by 0.2% in April 2024, its fourth consecutive monthly growth, and also grew by 0.9% in the three months to April 2024. By contrast, production output fell by 0.9% in April 2024 following growth of 0.2% in March 2024, but grew by 0.7% in the three months to April 2024. A similar trend was observed in construction, where output fell by 1.4% in April 2024, its third consecutive monthly fall.
EXPORT DEMAND
THE BALANCE SCORE FOR EXPORT SALES INCREASED BY 1 POINT TO 56 AND IS 6 POINTS LOWER THAN THIS TIME LAST YEAR.
Export growth amongst Greater Birmingham businesses continues to lag behind the momentum seen in UK sales. 27% of firms saw an increase in overseas sales in Q2 2024, which is one percentage point lower than the previous quarter and 6 percentage points lower than Q2 2023. 57% reported that their export sales volumes remained stable, and 16% cited a fall in overseas sales activity. There was a noticeable difference between manufacturers and services firms in terms of export activity – 50% of manufacturers increased their overseas sales volumes in Q2 (in contrast to 26% in Q1), however only 20% of services firms saw this upward trend (compared to 29% in Q1).
Looking at export orders, Q2 data shows a return to trends seen in the latter half of 2023 – 27% cited an increase in advance overseas orders, falling significantly from 37% recorded in Q1 2024. This has caused the balance score to fall 3 points from 59 to 56, although Q2’s score is slightly higher than those seen in Q3 and Q4 of 2023. There was a significant uplift in the number of businesses reporting constancy in export order trade flows, rising from 43% in Q1 2024 to 58% in Q2, and a substantial decrease in the number of firms citing a drop in orders from overseas, falling from 20% to 15%.
Tepid export growth across Greater Birmingham is also reflected in West Midlands trade in goods data. The region’s total value of exports in Q1 2024 was £9bn, having fallen from £9.4bn in Q4 2023. EU exports in the West Midlands for Q1 2024 was £3.7bn, in comparison to £4bn in Q4 2023, marking a slight fall. Nevertheless, non-EU export sales volumes have grown from £5.3bn in Q4 2023 to £5.4bn in Q1 2024.
WORKFORCE & RECRUITMENT
IN Q2 2024, THE WORKFORCE BALANCE SCORE FELL TO 59, A DECREASE OF 4 POINTS ON Q1.
In total, 29% of firms across the board added to their workforce in Q2 – a 7 percentage point decrease compared to Q1 which was the main factor behind the fall of the balance score to a figure of 59. 54% of firms cited having attempted hiring new staff in Q2 compared to 58% in Q1. This is a marked contrast to this time last year when 61% of firms attempted to recruit. Manufacturing firms have seen a decrease in the number of firms attempting recruitment, falling from 78% to 64%, with services firms seeing a much smaller fall from 54% to 53%. Of those across all sectors citing experiencing difficulties with recruitment, this quarter’s figures show a plateau at 63%, the same figure as last quarter, a much welcomed fall from the 72% recorded in the latter half of 2023. Of those manufacturers that attempted to recruit, 75% cited difficulties, which is significantly higher than the cross-sectoral average but has fallen from 79% earlier this year. Services firms have fared better in this regard, with 61% experiencing recruitment difficulties this quarter, in comparison to 67% in Q1.
The mixed picture of recruitment seen in Greater Birmingham is reflected in labour market statistics across the West Midlands. While the West Midlands employment rate grew by 0.4% to reach 73.9% between February and April, the unemployment rate also grew by 0.9% to 5.1% during the same period. The region’s employment rate sits slightly below the national rate which is 74.3%, and the unemployment rate is 0.7 percentage points above the national figure of 4.4%. Between February and April 2024, the highest employment rate in the UK was in the South East (78.3%) and the lowest was in Wales (68.9%). The highest unemployment rate was in the East Midlands (5.6%) and the lowest was in Northern Ireland (2.2%).
PRICE PRESSURES & EXTERNAL FACTORS
Q2 2024 has seen a much-welcomed decrease in the number of firms expecting the price of goods and services to increase over the next 3 months, falling from 46% in Q1 to 38% in Q2. 61% anticipated that prices will stabilise, up from 53% in Q1, which gives an early indication that economic pressures are easing. Nevertheless, where businesses are facing pressures to increase their prices, this is due to labour costs (as cited by 30%), utilities costs (21%), and other overheads (17%). The cash flow balance score saw an increase of three points to a figure of 52 – much of this was attributed to the fact that 29% reported improved cash flow over the previous three months (compared to a figure of 25% in Q1).
29% of manufacturers expect prices to increase over the next 3 months, marking a sharp fall from 56% in the previous quarter. The main sources of pressure to raise prices are from labour costs (28%), raw material prices (23%), and utility bills (20%). The most significant external factor of concern for manufacturers was competition, as stated by 23% of respondents, followed by inflation as cited by 19%. Services firms are facing greater price pressures than manufacturers, with 39% expecting prices to increase, albeit a fall of 5 percentage points since Q1. 31% of respondents from services firms cited labour costs, 21% cited utility bills, and 11% were concerned about finance costs. 27% of respondents from services firms also expressed concern about inflation and competition, alongside 15% flagging interest rates and taxation. In both sectors combined, 26% of firms cited inflation – the lowest figure on record since Q3 2021 and before the onset of Russian’s invasion of Ukraine.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.0% in the 12 months to April 2024, down from 3.8% in the 12 months to March - on a monthly basis, CPIH rose by 0.5% in April 2024, compared with a rise of 1.2% in April 2023. The Consumer Prices Index (CPI) rose by 2.3% in the 12 months to April 2024, down from 3.2% in the 12 months to March. Falling gas and electricity prices resulted in the largest downward contributions to the monthly change in both CPIH and CPI annual rates, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago.
INVESTMENT & BUSINESS CONFIDENCE
THE BALANCE SCORE FOR TURNOVER HAS FALLEN BY 1 POINT TO 74, AND FOR PROFITABILITY IT INCREASED BY 6 POINTS TO 71
On average across all sectors, Q2 2024 saw fewer firms report revising their investment plans for equipment upwards, falling from 27% in Q1 to 24% this quarter. Fewer firms also cited decreasing investment levels in this area (falling from 17% to 13%), therefore the prevailing trend is that businesses are retaining existing investment levels, as is the case for 63% of respondents. Very similar patterns were noted for investment in training, with 25% increasing this expenditure, 63% retaining existing levels, and 12% revising it downwards. Manufacturing firms felt more inclined to boost spending on training, with 30% citing making increases in this area, as opposed to 24% looking to increase capex investment. Services businesses, on the other hand, plan to increase expenditure in both areas almost equally, with 24% revising capex investment upwards, and 25% for training.
There has been a slight fall in the number of firms expressing confidence that their turnover will increase over the next 12 months, decreasing from 61 in Q1 to 58 in Q2, and being 7 percentage points lower than this time last year. By contrast, the number of respondents expecting to see an increase in profitability has risen by 6 percentage points since last quarter to reach 55%. Manufacturers were equally optimistic about turnover and profitability, with 64% anticipating seeing an increase in both, whereas services firms are slightly more optimistic about turnover, with 57% expecting an improvement, than profitability for which 54% expect to see an uptick.
RAJ KANDOLA
Director of External Affairs, Greater Birmingham Chambers of Commerce
In the run up to the election, many businesses would have been heartened to see inflation fall to the 2% mark for the first time since April 2021. However the Bank of England resisted growing clamours to reduce interest rates – the figure of 5.25% has been in place since August 2023. Publicly, the Monetary Policy Committee cited the upside of service inflation and wage growth as key determinants behind their decision – privately, the chance of changing monetary policy in the midst of an election campaign and the potential impact this could have on the outcome meant there was zero chance of any surprises on the day.
Nevertheless, the tone of the Bank’s decision makers seemed to have changed and a future cut to interest rates seems more a question of ‘when’ not ‘if’. As evidenced in this quarter’s survey, a lower percentage of firms referenced interest rates as a concern compared to three months ago. This could suggest that local businesses share the same sentiment as those trading in the City of London where we saw a fall in the value of the pound on the day of the announcement in June with city analysts clearly pricing in a rate cut in August. Nevertheless, monetary policy alone cannot unlock long term growth –ultimately the new government will need to implement a complementary fiscal approach which encourages business investments and alleviates the huge cost pressures that many businesses face on a daily basis.
ABOUT THE QUARTERLY BUSINESS REPORT
The Greater Birmingham Chambers of Commerce’s (GBCC) Quarterly Business Report offers an up-to-date snapshot of the performance of the Greater Birmingham business community. It is the most comprehensive, regular report of its kind in the city-region. Underpinning our report is data gathered from quarterly surveys on key indicators such as sales, exports, investment intentions and the workforce. The Greater Birmingham Quarterly Business Report launched in 2016, succeeding the previous Quarterly Economic Survey Report.
The Chamber surveys businesses across the Greater Birmingham area, which includes Birmingham, Solihull, Royal Sutton Coldfield, Lichfield and Tamworth, Cannock Chase and Burton-on-Trent. Balance figures are determined according to business responses to the indicators: an increase (multiplied by 1), remain constant (multiplied by 0.5), decrease (multiplied by 0). A figure over 50 is indicative of growth; a figure under 50 represents contraction.
Note that figures may not always total exactly due to rounding differences.
ABOUT GREATER BIRMINGHAM CHAMBERS OF COMMERCE
The Greater Birmingham Chambers of Commerce is a membership-led, business support organisation that has acted as the voice of local businesses since 1813. Today, we continue to connect, support and grow local businesses.
We are one of the largest Chambers in the country, with 2,500 member companies covering six geographic areas across the region (Birmingham, Burton, Chase, Lichfield and Tamworth, Solihull and Royal Sutton Coldfield) and four themed divisions (Asian Business Chamber of Commerce, Future Faces, the Transatlantic Chamber of Commerce and the Global Chamber of Commerce).
Members range from young professionals to SMEs and large, high-profile organisations, including 39 Chamber Patrons comprising companies such as RSM, HS2 and The NEC Group.
ABOUT BIRMINGHAM CITY UNIVERSITY
Birmingham City University (BCU) is a dynamic practice led, research inspired anchor institution with 30,000 students from 126 countries, contributing £392m GVA annually to regional GDP (£532m nationally). It comprises four faculties delivering 1,000+ courses, supported by 1,545 practice-based academics.
BCU’s ‘University for Birmingham’ mission reflects its civic university role, with a strategy which places regional engagement at the core of its ambition. The University has an established national and international profile for its work on STEAM (STEM with Arts) - an approach that uses interdisciplinary and transdisciplinary thinking, stimulating new knowledge and ideas, supporting open innovation and regional growth, and driving talent to support future employer needs.
BCU actively engages with 3,000+ businesses regionally, nationally and internationally and has extensive sector linkages driving research, collaboration and innovation around identified priority areas and economic strengths including creative and digital, health, and green technologies.
In 2021, the University secured the Investor in Innovation standard from the Institute for Innovation and knowledge exchange in recognition of its work with businesses and partners to drive innovation and growth - just the second university in the country to be handed the accreditation.
QUARTERLY BUSINESS REPORT CONTACTS
If you have any further questions on the report, please contact Gemma Dilkes on G.Dilkes@birmingham-chamber.com
For more information, go to greaterbirminghamchambers.com.
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