QBR Q1 2024

QUARTERLY BUSINESS REPORT

Q1 | 2024

HENRIETTA BREALEY

Chief Executive Officer, Greater Birmingham Chambers of Commerce

The start of 2024 has brought emerging signs of improved business confidence in recruitment, domestic sales and price stability, despite the challenges that remain regarding investment and exporting.

Signs of progress have continued with domestic sales and orders given that the number of businesses reporting an increase in their UK business activity is now greater than the number of those reporting that it had stabilised – reversing a trend of multiple consecutive quarters. While showing signs of recovery from a sudden slump in mid-2023, export growth lags behind domestic growth. This highlights the difficulties faced by businesses trading internationally, especially contending with a complex international commercial and political environment such as disruption in the red sea and geopolitical instability in the Middle East on top of domestic macroeconomic challenges.

Looking at the wider landscape of business confidence, slightly more businesses than last quarter expect prices to stabilise than to increase, which coincides with the slight drop in inflation concerns compared with the latter half of 2023. Most significantly, there has been a notable improvement in the recruitment landscape this quarter, although overcoming difficulties to accessing talent remains high on business’ priority list and price pressures remain high. The last few months has seen the three West Midlands Chambers of Commerce collaborate on the research and delivery of the Business Commission West Midlands (BCWM), the findings of which reflect numerous trends seen in this quarter’s Quarterly Business Report survey. The BCWM has engaged with hundreds of local businesses to research key levers of business growth, such as people and skills, international trade, cash and finance, to understand how stakeholders and industry can work together to unlock the region’s business potential. The final report which outlines the recommendations that have emerged from the research is now published on our website.

JO BIRCH

Director of Innovation, Enterprise, Employability and Business Engagement, Birmingham City University

The Q1 survey indicates a good degree of optimism for the year ahead, when compared with the previous 12 months. In terms of the labour force, for example, over a third of survey respondents (36%) indicated that their workforce had increased over the 3 months preceding the survey – an uplift of +10 percentage points (pp) from the previous quarter. Further, a higher proportion of businesses anticipated that their workforce would probably increase over the next quarter (39% compared to 36% from Q4 2023).

The survey also revealed a reduction in the proportion of businesses that experienced difficulties in recruitment over the last quarter (-9pp), although skilled manual/ technical roles, and professional/ managerial roles were still found to be challenging to recruit against. In this context, it is notable that 53% of firms of responding firms were working below the full capacity at the point of responding.

Positive sentiment was also captured through the survey with regard to both UK and export market activity. In terms of the former, 45% of respondents identified that sales customs and bookings had increased over the past 3 months, compared with 40% in the previous quarter. In terms of the export market, whilst the same proportion of respondents (28%) highlighted an increase in sales, orders and advance customs saw an uplift of 11pp from 26% to 37%.

Reflecting pricing and costs, 46% anticipated the price of goods and services to rose over the next few months, which is in line with the position 3 months ago (45%). To this end, labour costs remained the biggest contributory pressure to raise prices – a trend unchanged since Q3 2022. Perhaps unsurprisingly, inflation also remained the external factor of most concern, followed by competition and interest rates. In this context, the fall in inflation from 5.1% in January to 4.5% in February whilst welcome, will no doubt remain a concern to businesses for some time.

DOMESTIC DEMAND

THE BALANCE SCORE FOR DOMESTIC SALES IS 65, WHICH IS 3 POINTS HIGHER THAN LAST QUARTER AND THE SAME AS THIS TIME LAST YEAR.

Overall, 45% of businesses reported an uptick in their domestic sales in Q1 2024, which is 5 percentage points higher than Q4 2023. This firmly indicates an upwards trend in the number of businesses seeing improved UK sales volumes following a sudden slump which saw the figure fall from 50% to 39% between Q2 and Q3 last year. 40% reported stabilisation in their domestic sales, marking a three-percentage point decrease on Q4 and the first time in nine months that more businesses saw an increase in UK sales than those seeing them remain constant. 15% cited that their domestic sales decreased in the first three months of 2024, which is roughly in line with figures seen throughout 2023.

Looking at domestic orders, 45% of businesses saw an increase this quarter, which marks a 5-percentage point increase on Q4 2023. 43% reported that their UK orders stabilised throughout Q1, and 12% state that they had decreased – down from 19% in Q4 2023. This positive shift in domestic order trends led the balance score to increase from 61 to 67. Looking at individual sectors, manufacturers saw more positive results with domestic orders than sales, with respective balance scores of 69 and 60, and nearly half (49%) reporting an increase in UK orders in Q1. The services sector recorded very similar performance across both areas, with 46% citing having increased their domestic sales and 44% for domestic orders – with both figures showing an improvement on Q4’s results.

Growth in sales and orders locally is reflected in national data on economic performance. The national monthly real gross domestic product (GDP) is estimated to have grown by 0.2% in January 2024, following a fall of 0.1% in December 2023. Services output grew by 0.2% in the first month of 2024 and was the largest contributor to the rise in GDP, but in the three months prior, services output showed no growth. Construction output also grew in January 2024, by 1.1%, after a fall in December 2023, of 0.5%. While production output fell by 0.2% in January 2024 after a growth of 0.6% in December 2023.

EXPORT DEMAND

THE BALANCE SCORE FOR EXPORT SALES INCREASED BY 1 POINT TO 55 AND IS 4 POINTS HIGHER THAN THIS TIME LAST YEAR.

Despite signs of optimism for the Greater Birmingham export landscape the value of goods exports across the UK decreased slightly by £0.1 billion (0.5%) in January 2024. 28% of firms report increasing their export sales growth, which is the same as Q4 2023 but does indicate that improvement in this area between Q3 and Q4 (during which time the figure increased from 23% to 28%) has been sustained. Over half of businesses (53%) cited stabilisation in export sales, and 19% saw a decrease. Services exports have fared better than goods exports this quarter, with 29% of services firms stating that they saw an increase in sales to overseas, in comparison to 26% of manufacturers. A notable positive trend for manufacturers, however, is that the number of firms citing a decrease in export sales has decreased from 27% in Q4 to 21% in Q1. The balance scores for services firms and manufacturers remain in positive territory at 56 and 53 respectively.

Cross-sectoral data shows that export orders have outperformed export sales in Q1. 37% of businesses increased their export orders, which compares to 26% in Q4 and is 6 percentage-points higher than this time last year. 43% indicated that their export order volumes remained the same as the previous quarter (down from 49% in Q4), and 20% reported a fall in export orders compared to 25% in Q4. For manufacturers, there has been a notable increase in those seeing an increase in export orders, rising from 26% to 40%, which has taken the balance score above 50 into positive territory, from 46 to 55. Services firms have seen similar positive trends for export orders, with 36% reporting an increase in Q1, increasing by 9 percentage points on Q4.

Despite signs of optimism for the Greater Birmingham export landscape the value of goods exports decreased slightly by £0.1 billion (0.5%) in January 2024. There was also a fall of 1.7% in exports to non-EU countries, however, this was partially offset by a 0.8% rise in exports to the EU. Similarly, imports from the EU were £5.8 billion higher than from non-EU countries in January 2024, while exports to the EU were £0.3 billion lower than exports to non-EU countries. The total goods and services trade deficit widened by £2.2 billion to £13.8 billion in the three months to January 2024 and has been relatively stable since Quarter 1 (January to March) 2023.

WORKFORCE & RECRUITMENT

IN Q1, THE WORKFORCE BALANCE SCORE ROSE TO 63, AN INCREASE OF 5 POINTS ON Q4 2023.

Following a long period of recruitment difficulties, the percentage of firms attempting to recruit over the last 3 months increased by 2 percentage points to 58% and the percentage of those experiencing recruitment difficulties over the same period decreased from 72% to 63% - the lowest figure since Q3 2021. Of those citing recruitment difficulties, 40% stated that they were linked to hiring professional/managerial staff and 30% for skilled manual/technical staff. Recruitment confidence across all sectors is showing tentative signs of picking up, with 39% anticipating that their workforce will increase over the next 3 months.

Within the manufacturing sector, recruitment difficulties have also shown signs of easing, with this quarter’s figure of 79% marking the second consecutive quarterly decrease since 86% reported difficulties with hiring in Q3 2023. Although these results remain significantly higher than the cross-sectoral average, indicating profound recruitment challenges within this industry, 48% remain optimistic that they will increase their workforce in the forthcoming quarter. For services firms, 37% report having increased their headcount in Q1 and 38% are optimistic about doing so in Q2 – this is in the context of 67% having had difficulty finding suitable staff in the first 3 months of this year. Much in line with the cross-sectoral results, hiring professional/managerial staff is a significant challenge for services providers, as was cited by 46% of respondents, and 97% reported having the most difficulty in recruiting for full-time positions.

Between October and December 2023, the West Midlands employment rate was 74.4%, which is 0.4% lower than the figure recorded between July and September. The national employment rate between October and December 2023 sat slightly higher at 75.0%. The region’s most recent unemployment rate was 3.8%, with a small increase of 0.1% - this is in line with the UK average and figures recorded in regions that typically outperform the West Midlands, including for example, London and the Southeast.

PRICE PRESSURES & EXTERNAL FACTORS

THE PRICE INDEX BALANCE SCORE ROSE FOR THE SECOND TIME BY ONE POINT FOLLOWING THREE CONSECUTIVE QUARTERLY DECREASES AND NOW SITS AT 73.

Businesses’ forecasts of prices of goods and services over the next 3 months has shown similar trends to Q4 2023. 46% expect to see prices increase, which is up by 1 percentage point on last quarter, 53% anticipate that they will remain the same (an increase from 45% in Q4), and it remains that only 1% foresee a decrease. Although the proportion of firms expecting prices to increase is significant, there has been a marked improvement on this time last year given that Q4 2022 and Q1 2023 58% and 50% respectively expected goods and services prices to rise. Labour costs are the most prominent source of pressure to raise prices, as cited by 27%, closely followed by utility costs, according to 22%. Concerns about inflation have fallen below 30% for the first time since Q3 2021, however there has been a slight uptick in the number of businesses concerned about interest rates, rising from 17% to 19%.

Looking at the sectoral breakdown, 44% of services firms and 56% of manufacturers expect prices to increase. For manufacturers, labour costs remain a prominent concern, as cited by one in three, in addition to raw material costs, which is a concern for 23%. Manufacturers disconcert about inflation has increased by 4 percentage points to 27%, and taxation is their second most prominent issue according to 24%. Services firms also indicate that labour costs are a source of pressure, as cited by 27%, and 23% highlight utility costs putting a strain on their finances. 29% are more concerned about inflation than three months ago, and 19% are concerned about interest rates and competition.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.8% in the 12 months to February 2024, down from 4.2% in January. Core CPIH (excluding energy, food, alcohol and tobacco) rose by 4.8% in the 12 months to February 2024, down from 5.1% in January; the CPIH goods annual rate slowed from 1.8% to 1.1%, while the CPIH services annual rate eased slightly from 6.1% to 6.0%. The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, and restaurants and cafes, while the largest upward contributions came from housing and household services, and motor fuels.

INVESTMENT & BUSINESS CONFIDENCE

THE BALANCE SCORE FOR TURNOVER HAS FALLEN BY 1 POINT TO 75, AND FOR PROFITABILITY IT REMAINS THE SAME AT 65.

In Q1 2024, 61% of firms were confident that their turnover would improve over the next 12 months, which is 1 percentage point lower than the previous quarter and is similar to figures seen throughout 2023. 27% expect turnover to remain stable and 12% anticipate that it will worsen. Looking at profitability, 49% expect this to improve over the upcoming year, 31% foresee that it will remain the same, and 20% believe that it will worsen.

Despite optimism for the upcoming year’s turnover and profitability projections, firms’ confidence to invest continues to lag behind, with the ongoing uncertainty in the economic and political environment being a likely contributing factor. 27% report revising investment plans upwards for equipment, which is a 6-percentage point increase on Q4, however approximately double the amount of businesses (56%) did not change current investment levels. 17% reported having revised equipment investment downwards. Results show that there is greater impetus to invest in training, with 32% stating that they have increased spending in this area in Q1 2024. 56% retained existing expenditure on training and 12% revised it downwards.

RAJ

KANDOLA

Director of External Affairs, Greater Birmingham Chambers of Commerce

The turn of Q1 2024 marked the UK’s fall into a technical recession as a result of negative growth recorded in the second half of 2023, with the fall in GDP between October and December being steeper than economists’ expectations. Although there have since been signs of a return to growth, gaining the momentum to exit the recession and return to economic strength requires the Government to commit to addressing the deep-rooted challenges that have been affecting businesses and individuals for many months.

The 2024 Spring Budget saw the Chancellor focus on three of the five priority areas that the Prime Minister identified at the start of 2023; to halve inflation, to grow the economy and reduce debt. There were elements in the Budget which will benefit the business community – namely additional support around childcare measures to help plug labour market shortages and extending the parameters of the full expensing scheme to encourage firm level investment. Such measures are particularly pertinent given that recent QBR survey result trends show that recruitment difficulties and low investment confidence are major obstacles to business growth. Nevertheless, as our data reveals, ingrained challenges remain and with a General Election on the horizon, political parties across the spectrum will need to set out a blueprint that will bolster business confidence and boost growth prospects.

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, 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 Sutton Coldfield) and four themed divisions (Asian Business Chamber of Commerce, Future Faces, the Transatlantic Chamber of Commerce and the Greater Birmingham 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. 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.

ABOUT BIRMINGHAM CITY UNIVERSITY QUARTERLY BUSINESS REPORT

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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