QUARTERLY BUSINESS REPORT
Q3 | 2024
HENRIETTA BREALEY
CHIEF EXECUTIVE OFFICER,
GREATER BIRMINGHAM CHAMBERS OF COMMERCE
As we approach the end of another eventful year, businesses across Greater Birmingham continue to exhibit a steely resolve in the face of economic uncertainty.
The incoming Government have been quick to reassert the fiscal challenges they have inherited from their predecessors and the knock-on impact this is likely to have on long-term growth projections. From a local perspective, the latest Quarterly Business Report reveals that domestic sales activity fell slightly compared to the last quarter and export sales continue to suffer from geopolitical tension as the trade deficit widened from a national perspective over the summer.
Recruitment activity remained stable in Q3 but ingrained challenges remain for those attempting to hire. Despite the national fall in the rate of inflation, price pressures remain prevalent for the majority of businesses across the region with investment in both training and capex falling across both indicators in the last three months. Nevertheless, business confidence across profitability and turnover projections remains strong and is a testament to the underlying resilience of local businesses. With the publication of the Autumn Budget, the Government will now need to work closely with the business community to ensure that their blueprint for growth remains anchored in pragmatism and takes into account the various challenges local firms continue to face. As a Chamber, we will continue to champion Greater Birmingham and ensure our region remains the destination of choice to start, grow and invest in business.
ABOUT THE QUARTERLY BUSINESS REPORT
PRO VICE-CHANCELLOR (PVC) ENGAGEMENT, ENTERPRISE AND INNOVATION
BIRMINGHAM CITY UNIVERSITY
The Q3 report highlights a complex economic environment marked by both caution and optimism among businesses.
While there is a decline in international demand and rising concerns about potential tax policies, as well as anticipated price increases, there is also a growing sense of optimism among firms in the West Midlands reflected in improved business confidence and expectations for increased turnover and profitability.
Reflecting the theme of the Q3 QBR launch event, accelerated adoption of AI technologies will serve to catalyse economic growth across key sectors, such as manufacturing, healthcare, and finance. With a robust industrial base and a thriving start-up community, Greater Birmingham is poised to capture increased economic benefit and productivity as a result of AI-based innovation.
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.
DOMESTIC DEMAND
THE BALANCE SCORE FOR DOMESTIC SALES IS 62, WHICH IS 2 POINTS LOWER THAN LAST QUARTER, MARKING A SECOND CONSECUTIVE QUARTERLY DECREASE.
Q3 2024 saw a slight fall in domestic demand, with 40% of businesses reporting growth in their domestic sales, compared to 44% in Q2. 44% stated that their UK sales volumes remained stable between the two quarters, which is 5 percentage points higher than 3 months ago, and 16% reported a decrease in domestic sales (the same figure as Q2). Similar trends can be observed when looking at domestic orders –41% of firms stated that their advance sales to UK businesses had increased during Q3, 46% reported stability in order volumes and 13% had seen a decrease.
When looking at the sectoral breakdown of UK sales data, significant fluctuations in trends can be seen amongst manufacturers. In Q3, the balance score within this sector for UK sales sat at 55, having decreased significantly from 67 in Q2, leading to the lowest manufacturing balance score for domestic sales since Q3 2022. 31% of manufacturers this quarter indicated that their UK sales had increased, which is 9 percentage points lower than the cross-sectoral average and 10 percentage points lower than the previous quarter. 47% reported constancy in domestic trade, which was similar this time last year, however another
EXPORT DEMAND
significant fluctuation was seen amongst those reporting a decrease in UK sales. Just over one in five (22%) stated that their UK sales volumes had decreased throughout Q3, which marks a significant increase from 7% in Q2, and is the highest figure recorded since Q4 2022. Services firms saw steadier trends, with 41% reporting an increase in domestic sales (down 4 percentage points since last quarter), 44% experiencing constancy (up 6 percentage points) and 15% indicating a decrease (down 3 percentage points).
Looking at economic growth across the UK as a whole, UK gross domestic product (GDP) is estimated to have grown by 0.5% in Quarter 2 (April to June) 2024, revised down from a first estimate increase of 0.6%. In output terms, national sectoral growth mirrors the trends seen within the city-region, with the services sector driving domestic sales growth in Q3 2024 and manufacturers seeing a loss of momentum regarding sales volumes. ONS figures show that nationally, services output grew by 0.6% in Q2 2024 with widespread growth across the sector but was partially offset by decreases in both the production and construction sectors.
THE BALANCE SCORE FOR EXPORT SALES DECREASED BY 2 POINTS TO 54 AND IS THE SAME AS THIS TIME LAST YEAR.
Export growth continues to struggle to keep pace with domestic growth, even in the context of a recent slowdown in UK trade growth amongst local businesses. 27% of firms report having increased their export sales volumes over the last 3 months, which is the same figure as the previous quarter but four percentage points higher than Q3 2023. The number of businesses retaining existing export volumes has been diluted by an uptick in those experiencing decreased sales in this area. 53% of businesses cited that their overseas sales had remained stable in Q3 (down from 57% in Q2 and down from 61% this time last year), and one in five reported a decrease (up from 16% last quarter).
Much like domestic sales, the sectoral analysis for export sales reveals some significant fluctuations over the past 12 months for manufacturing firms. 38% of manufacturers reported an increase in overseas trade, which decreased from 50% the previous quarter but compares favourably to the figure of 23% recorded this time last year. 50% reported stabilisation, up from 33% in Q2 but down from 68% in Q3 2023, and 13% saw a decrease. Export growth for services firms in Q3 was more tepid than for manufacturers – with 23%
of services firms seeing an increase (up from 20% in Q2), 54% experiencing constancy (down from 65%) and 23% seeing a decrease (up from 16%).
Export orders have seen greater fluctuation than export sales, with the balance score for advance overseas trade decreasing to 49 in Q3 from 56 in Q2 – marking the first fall into negative territory since Q1 2021. 23% saw an increase in their export orders in Q3 (down from 27% in Q2), 52% reported stabilisation (a decrease from 58%) and, most notably, one in four cited a decrease – a 10 percentage point uptick from the figure of 15% recorded in Q2.
The overall fall in export growth across Greater Birmingham is also reflected in West Midlands data on the value of trade by SITC (standard international trade classification) section and country group. The region’s total value of exports in Q2 2024 was £8.8bn, having fallen from £9.0bn in Q1 2024. This was driven by a fall in the value of non-EU export sales which decreased from £5.4bn in Q1 to £5.0bn in Q2. Conversely, the value of EU exports from the West Midlands remained stable between the two quarters at a value of £3.7bn.
WORKFORCE & RECRUITMENT
IN Q3 2024, THE WORKFORCE BALANCE SCORE ROSE BY 1 POINT TO 60.
Workforce headcount trends have remained largely stable since last quarter. In Q3 2024, 30% saw an increase in employee numbers (up from 29% in Q2 2024), 59% reported no change (down from 60%) and 11% saw a decrease in headcount (the same figure as last quarter). 52% of firms attempted to recruit new staff in Q3, which decreased slightly from 54% in Q2 and is the lowest figure recorded since Q3 2022. Furthermore, of those respondents that engaged in recruitment activity, 67% experienced difficulties in doing so – an increase of 4 percentage points since the previous quarter. While this figure for Q3 2024 is not as high as this time last year, when 72% reported struggling to recruit, this quarter has clearly been challenging for businesses looking to grow their workforce.
Looking at the sectoral breakdown, manufacturers experienced far more challenges with recruitment in Q3 than services firms. 59% of manufacturers attempted to recruit (in contrast to 64% in Q2), and 85% experienced difficulties in doing so (having increased from 75% in Q2), which reverses the trend of easing recruitment
difficulties throughout 2024. Conversely, 50% of services firms attempted to recruit in Q3 (down 3 percentage points since the previous quarter) and 64% encountered difficulties (an increase of 3 percentage points).
Looking ahead to next quarter across all sectors, 33% of firms expect to grow their workforce, 64% anticipate headcount remaining the same and 3% expect to see a decrease in employee numbers. Despite the challenging recruitment landscape seen in Greater Birmingham, labour market data from the Office for National Statistics (ONS) reveals that between June and August 2024, the West Midlands unemployment rate was estimated to have fallen by up to 1.1% to 4.1% and the UK unemployment rate to have fallen by up to 0.4% to 4.0%. Trends regarding regional and national employment rates are also encouraging, with the West Midlands figure estimated to have risen by 0.9% to 74.1% and the national figure to have risen by 0.6% to 75.0%*.
*Please note that the ONS Labour Force Survey (LFS) estimates have been affected by increased volatility, resulting from smaller achieved sample sizes, meaning that estimates of change should be treated with additional caution.
PRICE PRESSURES & EXTERNAL FACTORS
THE PRICE INDEX BALANCE SCORE ROSE FROM 69 IN Q2 2024 TO 71 IN Q3 2024.
The price pressures that businesses have been facing for some time have not showed signs of easing throughout Q3 2024. 43% of respondents expect the prices of their goods or services to increase over the next 3 months (an increase of 5 percentage points since last quarter). 56% anticipate prices to remain the same (down from 61% in Q2) and no businesses expect them to decrease – for the first time since Q3 2021. The price pressures faced by manufacturers have amplified significantly since Q2, with 50% expecting to raise their prices (in contrast to 29% last quarter), while services providers saw only a slight uptick from 39% in Q2 to 42% in Q3.
Across all sectors, the most significant source of price pressure is the cost of labour, as indicated by 30%. Concerns surrounding utility costs and other overheads remain elevated according to 20% and 19% of respondents respectively. Considering the external factors placing pressure on businesses, competition from other firms is the most significant cause of concern (as cited by 24%), however, there has been a significant uptick in those reporting unease around corporate taxation. 23% reported the latter as their primary business concern in Q3 2024, which has increased from 15% in Q2, and is the highest figure recorded since Q3 2021.
While inflation remains the most prominent concern for manufacturers, cross sectoral data reveals that the number of businesses citing this as the most significant issue for their business has fallen for the third consecutive quarter to 22%, which compares favourably to the figure of 30% recorded this time last year. This easing of concern about inflation locally matches the recent fall in the national Consumer Price Inflation (CPI) rate to 1.7%, down from 2.2% in August. Similarly, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.6% in the 12 months to September 2024, down from 3.1% in August. On a monthly basis, CPIH rose by 0.1% in September 2024, down from 0.5% in September 2023. The largest downward contribution to the monthly change in both CPIH and CPI annual rates came from transport, with larger negative contributions from air fares and motor fuels; the largest offsetting upward contribution came from food and nonalcoholic beverages.
INVESTMENT & BUSINESS CONFIDENCE
THE BALANCE SCORE FOR TURNOVER HAS INCREASED BY 4 POINTS TO 78, THE HIGHEST SINCE Q2 2023, WHILE FOR PROFITABILITY IT INCREASED BY ONE POINT TO 72.
Given the price pressures that businesses continue to face, it is not surprising to see a fall in investment confidence. The balance score for capex investment has fallen from 56 in Q2 to 50 in Q3 – the same trend can be seen with the number of firms across all sectors that increased their expenditure on equipment this quarter, which has fallen from 24% to 19%. The latter negative trend is, however, mostly driven by services firms as 32% of manufacturers increased their capex investment in Q3, up from 24% in Q2. The negative balance score change across all sectors is also propelled by 19% of firms reporting having revised their capex investment downwards, in contrast to 13% the previous quarter. Investment levels in training have also seen a fall, with the balance score falling from 57 to 54 and the percentage of businesses reporting having revised investment upwards in this area falling from 25% to 22%.
Despite tepid investment confidence, the balance score for turnover increased by 4 points to 78 in Q3 2024 – the highest score recorded since Q2 2023.
RAJ KANDOLA DIRECTOR OF EXTERNAL AFFAIRS, GREATER BIRMINGHAM CHAMBERS OF COMMERCE
The number of firms expecting to see an increase in turnover over the next 12 months sits at 65% (up from 58% in Q2), while 25% expect it to remain constant and 10% anticipate seeing a decrease. Services firms are more optimistic about the next year’s turnover projections than manufacturers, with 66% and 59% expecting to see increases in this area respectively. Confidence in profitability projections also demonstrates optimism within the Greater Birmingham business community.
The balance score for profitability rose by one point to 72 and 57% expect their business’ profitability to improve over the next 12 months, up 2 percentage points from last quarter. Manufacturers and services firms expressed very similar sentiment, with 56% and 57% expecting to see an increase respectively.
The Government’s Make Work Pay agenda must ensure that it remains both pro-business and pro-worker if we are to unlock economic growth.
The formal announcement of the Government’s Make Work Pay agenda represented the biggest shake up to employment law in decades. Reforms could grant workers in England, Scotland and Wales the right to claim unfair dismissal from day one – a big change from the existing two-year qualification period. Major changes have also been proposed to zero-hours contracts, flexible working (which will become ‘default’ for all workers), sick pay (the waiting period and lower earnings limit to receive Statutory Sick Pay will be removed) and unpaid parental and bereavement leave. Fire and rehire practices will also be banned in most circumstances, although a company could still use it if at risk of becoming insolvent.
The good news is this these changes will not happen overnight – as the latest Quarterly Business Report data has shown, the majority of firms are under pressure to raise their prices and many still face challenges in hiring staff. It is essential that the Government adopts a pragmatic approach which will negate any unintended consequences that could choke off firm-level investment and ultimately hinder growth. As a Chamber, we will continue to gather feedback on this evolving agenda from firms across the region and ensure the voice of business remains at the heart of these plans moving forward.
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, Cannock 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 38 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 trans-disciplinary 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 Join the conversation by following @grbhamchambers and using #GBCCQBR