About GBCC Increased geopolitical tensions and economic uncertainty continue to dominate the external picture for businesses. Despite this, businesses in Greater Birmingham remain positive with the balance score for businesses predicting an increase in turnover and profitability over the coming 12 months remaining strong – 77 and 70 respectively.
Henrietta Brealey Chief Executive Greater Birmingham Chambers of Commerce
Behind this confidence there were some notable changes this quarter. There was a fall in the percentage of businesses reporting an increase in domestic sales (from 50% at Q2 to 39% at Q3) and export sales (from 33% in Q2 to 23% in Q3). However, balance scores for these metrics remained positive overall and in line with figures last seen towards the end of 2022. Investment intentions also remain relatively weak with the balance score for capex hovering at 51, perhaps reflecting the impact of the uncertain environment and continuing concerns regarding interest rates and inflation noted elsewhere in this quarter’s survey. The Greater Birmingham Chamber of Commerce (GBCC) is committed to staying ahead of the curve in supporting businesses during these challenging economic times. We’ve recently launched the West Midlands Business Commission in partnership with Coventry & Warwickshire and Black Country Chambers of Commerce. This initiative aims to redefine our understanding of what businesses need to achieve their growth potential, using evidence provided by the local business community and drawing on the expertise of our panel of 12 Commissioners representing various professional sectors. For more details, please visit our website.
Echoing a trend from previous quarterly surveys, the operating conditions for businesses remain challenging. At 6.7% UK inflation remains high, whilst socio-economic conditions on the global stage continue to be precarious. Despite this, however, the analysis of findings indicates a level of constancy or stability across a number of business areas. For example, 60% of businesses felt that the price of goods and services is expected to remain the same over the next 3 months. Similarly, the highest proportion of respondents also indicated that sales, custom or bookings over the past 3 months had remained a constant for both the domestic (44%) and the export (61%) markets. Looking forward, orders and advance bookings were also anticipated to retain a level of constancy over the next 3 months, for both the domestic market (48%), and the export market (56%).
Professor Julian Beer Deputy Vice-Chancellor Birmingham City University
In terms of the labour market, less than 1 in 3 businesses (30%) indicated that their workforce had increased in the three months preceding the survey, although 37% felt that their workforce would probably increase over the next quarter. However, problems in terms of recruitment persist, with 72% of businesses having experienced difficulties over the last quarter (the highest level since Q2 2022). This was predominantly in relation to professional/ managerial, and skilled manual/ technical roles. Whilst reflecting a slight decrease since the last quarter, firms were confident that their turnover (63%) and profitability (56%) would improve over the next 12 months. It should be noted, however, that external factors were still a concern for the regional business community, with inflation again highlighted as the most pressing, followed by interest rates.
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. QUARTERLY BUSINESS REPORT Q3 2023
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.
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.
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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. Join the conversation by following @grbhamchambers and using #GBCCQBR
Quarterly Business Report Q3 | 2023
DOMESTIC DEMAND
EXPORT DEMAND The export sales balance score fell by 8 points this quarter to 54 – returning to the figures seen in late 2022.
The balance score for domestic sales is 67, remaining the same as last quarter.
DOMESTIC SALES
Balance 0 Points ▲
▼
=
39%
17%
44%
DOMESTIC ORDERS
Balance 0 Points ▲
▼
=
35%
17%
48%
Overall, the number of firms reporting an uptick in their domestic sales fell from 50% in Q2 to 39% in Q3 – although this marks a significant decrease, the Q3 figure falls more into line with the figures of around 40% recorded towards the end of 2022. Mirroring this fall in the number of businesses seeing growth in this area, 44% report that their domestic sales volumes have remained constant, which is 11 percentage points higher than the previous quarter. 17% of businesses in both Q2 and Q3 state that they have seen a decrease in domestic sales. In terms of sector-specific results, manufacturers express that growing their domestic sales this quarter has been a struggle, with 35% experiencing growth in contrast to figures over 50% recorded during the first half of 2023. By contrast, services firms have proved to be more resilient in the face of these challenges, with 40% experiencing domestic sales growth this quarter (a 9-percentage point decrease on Q2). As for advance UK orders, the overall balance score also remained the same as last quarter at 68. 35% of businesses state that their domestic orders have grown in demand, which has decreased from 49% in Q2. 48% reported that their domestic orders remained stable over the last 3 months, which is the highest figure recorded since Q4 2019, and the quantity of orders decreased for 17% of respondents. In terms of individual sector results, 34% of manufacturing businesses and 35% of services firms saw increases in UK orders. The national monthly real gross domestic product (GDP) is estimated to have grown by 0.2% in August 2023, after a fall of 0.6% in July 2023. Although the number of businesses in Greater Birmingham reporting an increase in domestic sales and orders has fallen since last quarter – it has been reported that, on a national level, GDP across all sectors has risen 0.3% with there being growth in all sectors. Output for the services sector rose by 0.4% in August 2023 and was the main contributor to the growth in GDP, however consumer services output fell 0.6%. For the manufacturing industry, output in production fell 0.7%, and construction fell 0.5%.
PRICE PRESSURES & EXTERNAL FACTORS
CASH FLOW
Balance
▲ 0 Points ▲
29%
=
48%
▼
24%
EXTERNAL FACTORS INFLATION
30%
BUSINESS RATES
20%
INTEREST RATES
15%
COMPETITION
17%
EXCHANGE RATES
6%
TAXATION
12%
EXPORT SALES
Balance
▲ 8 Points ▲
23%
▼
=
1%
61%
EXPORT ORDERS
Balance
▲ 10 Point ▲
27%
▼
=
17%
56%
The significant fall in the balance score is echoed by a decrease of 10 percentage points for firms reporting higher levels of export sales (from 33% in Q2 to 23% in Q3). In line with the latest figures, 24% of services firms stated that their export sales volumes had risen, down only two percentage points from Q2. It is notable, however, that whilst 23% of manufacturing firms saw export sales increases in Q3, this marks a significant fall from the previous quarter’s figure of 48%. It is clear that in Q3, stabilisation of export sales figures has been a far stronger trend than growth seen previously, with 61% of businesses across all sectors reporting that export sales volumes had remained the same over the last 3 months – for manufacturing and services firms, this is 68% and 58% respectively. Decreases in export sales were reported for 16% of businesses overall in Q3, with 9% for manufacturing and 18% for services. Looking at advance export orders, 27% saw an increase in Q3, down 10 percentage points from 37% in Q2. 32% of respondents in the manufacturing industry experienced growth in this area, and 25% of services businesses. In both quarters, 56% across all sectors state that their export orders have stabilised (65% and 53% for manufacturing and services firms respectively), whilst 17% report seeing a decrease in their advance exports. This figure is 10 percentage points higher than last quarter but more in line with the results reported over the last 12-18 months of between 16% and 22%. This quarter’s contraction within exporting landscape in the city-region reflects similar national trends - ONS data from April 2023 shows that value of UK goods exports decreased by £0.7 billion (2.2%) because of a fall in exports to non-EU countries, although exports to the EU remained stable in August 2023, which is a welcome change from previous recent quarters where EU trade levels have fallen. The total trade in goods and services deficit narrowed by £3.5 billion to £10.4 billion in the three months to August 2023, as imports fell by more than exports.
BUSINESS INVESTMENT & BUSINESS CONFIDENCE
The price index balance score saw the third consecutive quarterly decrease from the record high of 79 recorded in Q4 2022. It has now fallen from 72 in Q2 to 69 in Q3.
The balance scores for turnover and profitability have both fallen by one point this quarter to 77 and 70 respectively, reversing the upward trend seen at the start of the year.
39% of businesses expect the price of goods and services to rise over the next 3 months, which is down from 45% recorded in Q2 and 16 points lower than figures recorded in Q3 2022, whilst 60% expect prices to stabilise in contrast to 53% recorded three months ago, and 17 percentage points higher than this time last year. Only one percent anticipate prices to fall over the next 3 months, compared with 2% in the previous quarter.
The balance score for turnover has decreased by one point following three consecutive quarterly increases. The number of firms expecting to see an increase in their turnover in the next 12 months has decreased 2 percentage points on last quarter to 63%, those expecting no change in this area has risen from 25% in Q2 to 27% in Q3, and only 10% are anticipating a drop in turnover, which remains the same as the previous quarter. In terms of profitability, the positive sentiment reflected in the number of businesses expecting this to increaseover the next year has been dampened slightly having fallen from 58% in Q2 to 56% in Q3, however aside from this, these figures remain the highest recorded since Q4 2021.
Looking at the reasons behind these results, it is evident that labour costs remain a key challenge for businesses having been cited by 28% in Q3, although this is significantly lower than the 37% recorded in Q2 which was the highest figure recorded for many years. For 22% of firms, the cost of utilities also continues to put a strain on their finances, however this figure has also fallen since Q2 by 7 percentage points. When considering other external factors, interest rates remain a prominent concern, with 20% of businesses reporting this in contrast to 18% in Q2 and Q1. Nevertheless, there are positive indications that inflationary pressures are finally easing, with cited concerns falling from 33% in Q2 to 30% in Q3 – marking the second consecutive quarterly decrease since peak figures of between 37% and 41% which were recorded between mid-2022 and early 2023. The levelling off of business’ concerns about inflation are reflected in the most recent CPI figures. It is encouraging to see some emerging signs of price stability: the Consumer Prices Index (CPI) rose by 6.7% in the 12 months to September 2023, the same rate as in August, and on a monthly basis, CPI rose by 0.5% in September 2023, the same rate as in September 2022. There is also evidence of incremental decreases in core CPI (excluding energy, food, alcohol and tobacco), having risen by 6.1% in the 12 months to September 2023, down from 6.2% in August. The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food and nonalcoholic beverages, and furniture and household goods. Rising prices for motor fuel made the largest upward contribution to the change in the annual rates.
QUARTERLY BUSINESS REPORT Q3 2023
WORKFORCE & RECRUITMENT
CAPEX
Balance 0 Points ▲
21%
=
62%
▼
16%
TURNOVER
Balance ▲ 1 Point ▲
63%
=
27%
▼
10%
The more tepid business confidence seen above for turnover and profitability is also reflected in business’ investment plans. 21% report having increased their investment in the form of capex in Q3, which is one point lower than in Q2 and 7 points lower than the 28% recorded in Q1. 62% of firms have retained existing levels of capex spending over the past 3 months, compared to 57% in Q2, whilst 16% have decreased this expenditure –six points higher than the previous quarter. The balance score for capex remained stable at 51. Whilst investment in training appears to have been resilient to the external pressures causing businesses to reevaluate their investment plans, it has still suffered slightly in comparison to last quarter. Whilst 29% of businesses increased their spending on training this quarter, this is 4 percentage points lower than Q2. Furthermore, 61% kept their training investment levels the same in Q3, in comparison to 57% in Q2, and finally, in both quarters, one in ten revised their training expenditure downwards.
In Q3, The workforce balance score remained the same as Q2 at 59 – a three-point decrease on Q1.
WORKFORCE
Balance
▲ 3 Points ▲
30%
=
58%
▼
12%
60% OF FIRMS ATTEMPTED TO RECRUIT
OF WHICH
72% FACED RECRUITMENT DIFFICULTIES
In Q3, 30% of businesses report having grown their workforces over the past 3 months, which is one point higher than in Q2. More manufacturers than services firms have increased their staff numbers this quarter (32% and 27% respectively), however, since the start of the year, manufacturers have seen the sharpest drop in hiring activity given that given that 52% reported workforce growth in Q1, falling to 37% in Q2 and again to 32% in Q3. Once again, a strong majority of businesses in all sectors report that their workforce headcount has remained the same over the past 3 months, with a 58% cross-sectoral average, 64% of manufacturers and 61% of services firms. As for businesses which have seen a decrease in their staffing levels, this represents 12% of businesses overall, 12% of services firms and 5% of manufacturers. The longstanding recruitment struggles which businesses have faced show no signs of easing with 72% of respondents reporting that they have struggled with hiring over the past 3 months – 4 percentage points higher than the 68% recorded in Q1 and Q2 and the highest figure recorded since Q2 2022. In line with previous trends, manufacturers in Greater Birmingham have experienced the most difficulty with recruitment, with 86% facing challenges. While services firms have fared better, 68% report ongoing recruitment struggles with this figure being the highest recorded since Q3 2022. The majority of businesses had most difficulty in recruiting staff at professional/managerial level (36%), followed by 28% citing skilled manual/technical workers, 19% for clerical workers, and 16% for semi-skilled/unskilled. As for manufacturers, difficulties were most pertinent when hiring skilled manual/technical workers (41%) and businesses in the services sector struggled with professional/ managerial level (39%). Regional labour market statistics reveal that in the period from May to July 2023, the West Midlands employment rate was 75.1%, which is 0.4 percentage points lower than between February and April 2023, and is compared to the UK-wide average employment rate of 75.5%. The West Midlands unemployment rate has increased by 0.1 percentage points between May and July to 5.0%, meaning thar the regional unemployment rate is 0.7% higher than the national average. Although during February and July the West Midlands had the joint-highest unemployment rate alongside Wales, between May and July, it is the third highest behind the North West (5.3%) and the North East (5.2%).
Long-term projections for the UK economy remain uncertain despite a return to growth The Office for National Statistics recent release revealed that the economy expanded by 0.2 per cent in August, following a sharper than expected fall the previous month, with the services sector being the main contributor to growth in August, while car manufacturing and sales boosted the longer-term economy. These GDP results reveal a mixed picture, with activity picking up in August having seen a slowdown in July as rail strikes and bad weather had a direct impact on output.
Raj Kandola Director of External Affairs Greater Birmingham Chambers of Commerce
Given that investment in infrastructure is a significant driver of economic growth and productivity, it suffices to say that the Government’s recent decision to no longer proceed with the northern leg of HS2 has impacted the business community’s overall confidence in the Government’s commitment to levelling up, connecting regions for business opportunities, and making long-term investment in vital infrastructure for future needs. It is for this reason, alongside existing inflationary pressures and ongoing economic uncertainty, that the upcoming Autumn Budget will have to deliver solid commitments on key priorities to help regain buoyancy in the economy and to incentivise investment. Priorities such as reducing upfront costs for businesses, easing recruitment challenges and tackling trade barriers with our European counterparts will need to figure prominently if we are to restore much needed confidence to the business community.
QUARTERLY BUSINESS REPORT Q3 2023
QUARTERLY BUSINESS REPORT Q3 2023