Quarterly Business Report
The latest results from the Quarterly Business Report point to the myriad of challenges businesses across the region are currently facing and the admirable resilience they are demonstrating in such testing circumstances. Surveying for the Q3 report took place in early September, ahead of the release of the Government’s controversial Mini Budget and underlines the ongoing price pressures and recruitment challenges firms are continuing to face. It was also no surprise to see a fall in the balance scores for domestic and international demand as soaring energy bills, rampant inflation, rising interest rates and ongoing supply chain disruption continue to bite.
Business confidence has also taken a knock as firms attempt to navigate an uncertain economic terrain, however both the balance scores for turnover and profitability remain anchored in positive territory, a testament to the resolve that underpins local business activity. At the time of writing, the Government has performed a series of U-turns in relation to the announcements made in late September which created financial turmoil and simply compounded the challenges businesses up and down the country are currently facing. It is essential the Government offers a credible plan for economic growth which balances fiscal rectitude with pragmatism and gives businesses the confidence they need to plan ahead for the coming months. As a Chamber, we will continue to play our role in ensuring that Greater Birmingham remains a destination of choice for businesses and investors alike.
The operating conditions for regional businesses remain challenging and echo the national picture.
Inflation was again identified as the external factor that businesses were most concerned about - cited by 40% of respondents, compared with 33% in Q1. Concern regarding interest rates had also risen since Q2, alongside business rates; whilst just under a third of businesses (30%) identified that their level of cashflow had decreased compared to the previous quarter.
Professor Julian Beer Deputy Vice-Chancellor Birmingham City UniversityIn terms of the UK market, 16% of respondents identified that sales, custom and bookings had decreased – the highest level since Q2 2021, whilst 19% indicated that orders and advance custom and bookings had also decreased. Business also continued to experience challenges with regard to the export market with over 1 in 5 (21%) stating that their sales had decreased, and 22% that advanced orders had decreased (an uplift of +9 and +6 percentage points respectively compared with Q2).
Unsurprisingly, these contextual factors have underpinned a continued trend of decreased confidence amongst respondents. Just 52% of the business base were confident that their turnover would improve over the next 12 months (-7 percentage points from Q2), whilst 20% felt that turnover would worsen (+10 percentage points from Q2). Similar sentiment was registered in terms of confidence around profitability, with just 40% of businesses confident that this would improve (-9 pp from Q2), whilst just under a third felt that this would worsen (31%, up +12 pp from 19% in Q2).
The trend of declining confidence across both services and manufacturing sectors has understandably also influenced planned investment in equipment which has been revised downwards by 24% of businesses; and plans for training which has been revised downwards by 16% of businesses.
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 Burtonon-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.
The balance score for domestic activity is the lowest it has been since Q1 2021 (in the midst of pandemic lockdowns), although is still 15 points above that figure. The fall in balance score between Q2 and Q3 2022 is due to a 7% drop in respondents reporting an increase in domestic sales and a 3% rise in firms experiencing lower demand over the previous quarter.
Domestic orders also continue to indicate growth, despite falling from 65 in Q2 to 59 in Q3. Manufacturers experienced this drop more acutely, with the balance score falling 13 points to a score of 50. In contrast, the figure fell by five points to 61 for services firms. This was due to an 6% increase in service firms reporting a decrease in domestic orders (from 11% to 17%).
The latest national data shows a similar picture, with UK Gross Domestic Product estimated to have fallen by 0.1% in Q2 2022 according to the Office for National Statistics (ONS). This is approximately 0.6% above pre-coronavirus levels. Services fell by 0.4% during the quarter, which was especially prominent in human health and social work activities, and likely a reflection of a decrease in Covid-19 related activity. However, other consumer services such as arts, entertainment and recreation, accommodation and food service, and other services (such as travel agencies and tour operators) contributed positively over the quarter.
55% of businesses reported an expectation for their prices to rise over the next three months, a 1% decrease on the previous quarter which brought the balance score down one point to 77. The most prominent sources of these concerns were for utilities (31%, an increase of 3% since Q2) and labour costs (30%, a decrease of 2% since Q2). For manufacturers, the main reason continued to be raw material costs (28%). 40% of the concerns reported by firms related to inflation, a 1% decrease on the previous quarter, which was a record high.
ONS’ Consumer Prices Index rose by 9.9% in the 12 months to August 2022, which was down from 10.1% in July. The fall in cost of motor fuels made the largest downward contribution, while food prices made the largest upward contribution to changing rates. 18% of concerns reported by firms in Q3 related to interest rates, which are likely to be more pronounced in Q4 given the fallout from the Government’s mini budget in late September. This level of concern around interest rates is the highest since Q4 2014.
Soaring energy prices and the methods available to businesses to drive more efficient usage was a central theme of this year’s Sustainable Business Series. The campaign ran throughout October and covered a series of topics including reducing energy costs, developing low-carbon products and climate risk and adaption. The series consisted of a series of webinars, Zoom Q&As and blog posts which offered guidance and tips to businesses embarking on their own net zero journeys –full details can be found on our website.
The balance score for domestic sales fell by six points to 62, although it remains in positive territory.
The price index balance score fell by one point in Q3 to 77, the second highest on record.
The balance scores for both export sales and orders have fallen to 52 and 54 respectively as global supply chain disruption continues to impact global trade patterns.
Due to a drop in the proportion of firms reporting an increase in export sales (from 34% in Q2 to 25% in Q3), the export sales balance score has fallen by nine points to 52. This was mostly experienced in the services sector, with the balance score falling 18 points to 46 due to the proportion of firms reporting an increase falling from 37% last quarter to 19%. This figure last entered negative territory in Q1 2021. In contrast, the manufacturing sector saw an increase of four points in the balance score to 62 as a result of a 3% increase in firms reporting an uplift in sales and a 5% decrease in those experiencing a fall in sales.
In terms of export orders, the balance score fell seven points to a figure of 54, largely due to an 9% decrease in the proportion of businesses experiencing an increase in orders. Again, this figure was experienced differently across sectors, with the score for service firms falling 17 points to 48, whilst manufacturers saw a seven point increase to 62.
According to the most recent international trade data from HM Revenue and Customs, the West Midlands export market for Q2 2022 was worth £6.9bn, a decrease of £1.5bn compared to the previous quarter. Nationally, the UK’s total export of goods (excluding precious metals) in August 2022 increased by £0.4bn, driven by a 4.1% increase in exports to non-EU countries, while exports to EU countries decreased by 1.5%. It is clear that Brexit-related disruption is still rife across the country, and to support regional businesses the three Chambers of Commerce in the West Midlands Combined Authority geography (Greater Birmingham, Black Country, Coventry and Warwickshire) are delivering a range of activity – including events, briefing resources, and expert videos – to update local firms on ongoing Brexit-related issues.
WORKFORCE & RECRUITMENT
71% of firms reported experiencing recruitment difficulties this quarter, a decrease of 5% compared to the previous quarter.
The proportion of firms attempting to recruit and those experiencing recruitment-related issues both fell in Q3 compared to Q2, from 60% to 52% for the former and from 76% to 71% for the latter. Recruitment for professional/managerial roles was proving the most difficult, accounting for a third of the roles for which firms were struggling to fill. Only 24% of firms have increased their workforce over the past three months for a balance score of 56. This is a three-point decrease compared to Q2 2022 but is still indicative of growth. The balance score for workforce expectations over the next three months has also fallen by five points to 64 due to an 11% decrease in the proportion of firms expecting an increase in workforce over the following quarter.
Latest regional statistics shows that in the three months to August 2022, the unemployment rate and economic inactivity rose by 0.3 per cent to 4.7 per cent and 21.6 per cent respectively. The quarterly increase led to the West Midlands recording the highest unemployment rate estimate in the UK, with the South-West by comparison the lowest at 2.7 per cent. Over the course of a year, the unemployment rate in the West Midlands remained unchanged, local unemployment fell slightly by 0.2 per cent and economic inactivity increased slightly by 0.1 per cent.
The balance scores for turnover and profitability fell again for the fourth and fifth consecutive quarter respectively.
52% of firms across both sectors felt confident that their turnover will increase over the next 12 months, a drop of 7% compared to Q2 2022. By contrast, we saw a 10% rise in the percentage of firms expecting their turnover to diminish over the next 12 months, which led to a nine point fall in the balance score to a figure of 66. Manufacturers saw the biggest decrease in balance score, from 72 last quarter to 58 in Q3, while services fell eight points from 76 to 68. The former figure was due to a 17% increase in manufacturers reporting a decrease in turnover estimates (to 27%). For service firms, this downturn was largely related to the proportion of organisations reported a decrease doubling to 18%. This picture was similar for profitability, which fell 10 points from 65 to 55. This was due to a 9% decrease in those expecting an increase (to 40%) and a greater percentage of firms that forecasted lower profit margins looking ahead to 2023 (19% in Q2 compared to 31% in the current quarter).
The balance scores related to investment in capital expenditure and training have fallen between Q2 and Q3 2022, with capex dropping below a growth sentiment to a score of 48 and training falling four points to 54. The last time the capex balance score showed contraction was Q1 2021. While there was a 1% increase in manufacturers reporting increases in capex investment, the proportion of those expecting to remain constant has fallen by 15% (to 46%) and the proportion of those expecting to spend less has increased 14% (to 26%). These figures are supported by the Bank of England, who expect the United Kingdom to enter a recession in 2023.
Chamber Comment
As Table 1 set outs, profitability and turnover projections have oscillated markedly since the start 2020. The time spanning the pandemic has seen both record highs (a turnover balance score of 82 in Q4 2021) and lows (balance scores for both turnover and profitability in Q2 2020) for business confidence, perhaps evidence of the uncertainty that businesses in the city-region have felt during the period.
Since the lifting of initial Covid-19 workplace restrictions, we have seen business confidence steadily increase to a balance score peak at a figure of 82 (in Q4 2021) for turnover predictions and 75 (in Q3 2021) for profitability, however this figure has dipped markedly in the current quarter as businesses struggle to navigate an uncer tain economic terrain. In light of these results, it is clear that businesses are craving a period of stability in order to plan ahead with a degree of certainty looking ahead to 2023. For a period in September, it looked as if fiscal and monetary policy were heading in opposite directions as businesses struggled with the fallout from rampant inflation, global trade disruption, staffing issues and soaring energy costs. Nevertheless, it is vital that the Government works closely with the Bank of England to minimise financial disruption and creates a platform for growth which tackles regional economic ineq uity, reaffirms a commitment to sustainability and delivers game changing projects such as HS2.
Raj Kandola Head of Policy and Strategic Relationships Greater Birmingham Chambers of CommerceAbout GBCC
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 Commonwealth Chamber of Commerce).
Members range from young professionals to SMEs and large, high-profile organisations, including 38 Chamber Patrons comprising companies such as RSM, HS2 and The NEC Group.
About Birmingham City University
Birmingham City University is a dynamic, business-engaged institution. As a substantial employer with over 2,000 staff and through the provision of graduate talent, research and knowledge transfer, we contribute around £180 million to Birmingham’s GDP.
The university works with in excess of 5,000 businesses, regionally, nationally and internationally, with our courses informed by Industry Advisory Boards, where information about business needs are reviewed and skills challenges are discussed. In 2015 we launched Advantage, the business growth service from Birmingham City University enabling organisations and individuals to get connected with knowledge, skills and money in business, innovation and enterprise.
We have extensive sector linkages providing detailed intelligence and input into future innovation, driving thinking around smart specialisation, the creative economy, advanced manufacturing and health-related life sciences. Through our work with partners such as the GBS LEP, WMCA, Science City, and Creative City Partnership, we take a lead on cross innovation, design and climate change. Innovation is at the core of our work. Working in partnership is at the core of our approach to business.
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