Quarterly Business Report Q4 | 2023
Our QBR index for the final quarter of 2023 indicates that, while not uneventful in the external environment, there were signs of welcome stability on key measures of local business sentiment. Among both sectors combined, the domestic sales balance score remained in positive territory at 62.
Henrietta Brealey Chief Executive Greater Birmingham Chambers of Commerce
Export growth remained positive, albeit notably less strongly so at 54. Business confidence in improving turnover over the next 12 month remains high at a balance score of 76, with 62% of businesses predicting an increase in turnover. Confidence in improving profitability was also positive at a score of 65, although notably weaker than the indicator for turnover. A key contributor to this is no doubt the rising cost of doing business. 45% of respondents expect prices of good and services to increase further over the next 3 months which, while down from its peak 12 months ago, is still significantly higher than the long-term trend. 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. The Commission aims to redefine our understanding of what businesses need to achieve their growth potential and set out the actions required from stakeholders to unlock growth opportunities. The initiative draws upon evidence provided by the local business community and the expertise of our panel of 12 Commissioners representing various professional sectors. For more details, please visit our website.
A review of macro trends across the year indicates a mixed picture in terms of confidence amongst the Greater Birmingham business base. For example, whilst the proportion of businesses anticipating reduced turnover decreased by -1 percentage point (pp) between Q1 and Q4, the number predicting worsened profitability increased by +6pp.
Jo Birch Director of Innovation, Enterprise, Employability and Business Engagement Birmingham City University
The results also echoed ongoing instability at a national level, which has seen fluctuations in inflation, and interest rates over the past twelve months – both of which remained the most commonly cited concerns across the year. By way of illustration, at 45% the proportion of businesses expecting the price of goods and services to increase rose by +6pp since Q3, but decreased by -5pp when compared with 12 months ago. Looking specifically at the last quarter, 83% of businesses indicated that their sales, custom or bookings had either increased or remained the same. A similar proportion (81%) also indicated either an uplift or constancy in terms of forward orders and bookings. However, despite this stability there is clearly room for growth with 53% of businesses working below full capacity at the time of survey. In terms of the labour market, just 1 in 4 businesses (26%) indicated that their workforce had increased in the three months preceding the survey, although 36% felt that their workforce would probably increase over the next quarter. However, problems in terms of recruitment continue to persist, with 72% of businesses having experienced difficulties over the last quarter (the joint highest level since Q2 2022).
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 Q4 2023
DOMESTIC DEMAND The balance score for domestic sales is 62, which is one point higher than last quarter.
DOMESTIC SALES
Balance
▲ 1 Point ▲
▼
=
40%
16%
43%
DOMESTIC ORDERS
Balance
▲ 2 Points ▲
▼
=
40%
19%
41%
Overall, the number of firms reporting an uptick in their domestic sales increased by one percentage-point on last quarter to 40% in Q4 2023. Whilst this is the same figure as a year ago in Q4 2022, it marks a significant decrease from Q2 2023 when half of respondents saw an increase in their UK sales. 43% reported that their UK sales remained stable in Q4, a minimal contrast to 44% recorded last quarter, and less than one in five (16%) noted a decrease. The breakdown of results for manufacturing and services firms reveals similar trends, with 40% of manufacturers and 41% of services firms stating that they saw an uptick in domestic sales this quarter, with respective increases of 5 percentage points and one percentage point since Q3. When looking at domestic orders, 40% of businesses across all sectors reported seeing an increase (5 points higher than last quarter), 41% retained the previous quarter’s order levels (falling from 48%), and 19% saw a decrease (in contrast to just over one in five in Q3). Once again, the figures recorded for manufacturing and services firms fell in line with the cross sectoral average, with both sectors reporting that 40% had increased their orders for UK-based customers, 40% and 41% respectively had seen stabilisation. Again, for both industries 19% had seen a decrease. The national monthly real gross domestic product (GDP) is estimated to have grown by 0.3% in November 2023, after an (unrevised) fall of 0.3% in October 2023. The services sector was the main contributor to this growth, with output in this sector having grown by 0.4% in November 2023 and being the largest contributing sector to the growth in monthly GDP. The largest positive contributors to services output in this three-month period were growths of 1.4% in human health and social work activities and 1.5% in education, with fewer occurrences of industrial action in both sectors over the past 3 months. Production output grew by 0.3%, while construction fell by 0.2%.
PRICE PRESSURES & EXTERNAL FACTORS The price index balance score rose for the first time following three consecutive quarterly decreases, and now sits at 72.
CASH FLOW
Balance
▼ 2 Points ▲
27%
=
48%
▼
26%
EXTERNAL FACTORS INFLATION
30%
BUSINESS RATES
10%
INTEREST RATES
17%
COMPETITION
21%
EXCHANGE RATES
5%
TAXATION
16%
45% of businesses expect prices of goods and services to rise in the next 3 months, which is up from 38% in Q3 but 10 points lower than the figure of 55% recorded in Q4 2022. 54% anticipate a stabilisation of prices, in contrast to 62% recorded last quarter, and 1% envisage a reduction, which has increased from 0% in Q3. Businesses are primarily facing pressure to raise prices from increased labour costs (29%) and utilities (19%). Inflation concerns remained at 30% and the number of businesses citing increased preoccupation with market competition rose by four percentage points to 21%. 46% of manufacturers anticipate seeing an increase in goods and services prices over the next quarter. This is most pertinent when it comes to labour costs and raw materials, as cited by 31% and 23% respectively, and interest rates, causing concern to 31% of respondents. 45% of services firms expect prices to rise (up 7 points from last quarter), with 28% facing pressure from labour costs and 31% having become more concerned about inflation. Consumer Price Inflation figures also reflect the expectation amongst respondents that price increases have not yet levelled off. The Consumer Prices Index (CPI) rose by 4.0% in the 12 months to December 2023, up from 3.9% in November, marking the first time the rate has increased since February 2023. On a monthly basis, CPI rose by 0.4% in December 2023, the same rate as in December 2022. The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from alcohol and tobacco while the largest downward contribution came from food and non-alcoholic beverages.
QUARTERLY BUSINESS REPORT Q4 2023
EXPORT DEMAND The export sales balance score remained the same as last quarter at 54 and is the same figure as exactly a year ago.
EXPORT SALES
Balance 0 Points ▲
28%
=
51%
▼
25%
EXPORT ORDERS
Balance
▼ 4 Points ▲
26%
=
49%
▼
25%
Although the balance score has remained stable, the number of businesses stating that they had increased their export sales has risen by 5 percentage points to 28% in Q4 2023. This is the second highest figure recorded for export sales increases in 2023, however there are still improvements to be made to recover from a slump in export sales increases which began in Q3 2023. 51% retained existing levels of export sales, which marks a significant improvement of 10 percentage points on last quarter, and 21% saw an increase in this area (5 percentage points higher than Q3). Both manufacturers and services firms have seen a welcome uptick in the number of firms increasing their export sales, with Q4 2023 bringing these figures to 27% (an increase of 4 points) and 29% (an increase of 5 points) for each sector respectively. Export orders have, on the contrary, not seen the same improvement between Q3 and Q4 as export sales. Across the board, increases in export orders are down one point to 26%, but strikingly, one in four report a decrease in export orders (up 8 points on last quarter), and just under half (49%) report retaining existing export levels. Manufacturers have especially suffered from a loss of forthcoming overseas trade this quarter, with 35% stating that advance orders have decreased, which is the highest figure recorded since Q2 2020 when the region suffered the economic shock brought about by COVID-19. Trends in export orders are more in line with recent past figures for services firms, with there being no change in the number of firms reporting stabilisation of export orders (53%), and just under one in three recording an increase (27%, up two points on Q3). Despite a more positive export landscape emerging in Greater Birmingham in Q4, ONS data on the total value of UK exports and imports revealed that between October and November 2023, the value of UK exports decreased by 0.2% to £30.6bn, which is mostly due to a fall in the value of non-EU exports of 5.0% to £15.3bn. The value of EU exports increased 1.2% to £15.3bn. The Greater Birmingham Global Chamber of Commerce was established in February 2023 and offers businesses the chance to build global relationships and connect to new markets. The wider GBCC international division are skilled in providing support with translation services, international documentation and logistics support. More information is available on our website.
BUSINESS INVESTMENT & BUSINESS CONFIDENCE The balance score for turnover has fallen by 1 point to 76, and for profitability has fallen by 5 points to 65. 62% of firms are expecting to see an increase in their turnover over the next 3 months, which is one point lower than last quarter and 8 points lower than Q4 2022. 28% are expecting turnover to remain the same, and 11% anticipate a decrease. As for profitability, 51% predict that they will see an increase, marking a 5 point decrease on the figure recorded in Q3 and a 10 point decrease on Q4 2022. 27% predict that profit levels will remain stable, while 22% anticipate seeing these fall.
CAPEX
Balance ▼ 1 Point ▲
21%
=
60%
▼
19%
When looking at investment levels, the trend of low confidence seen over the past few quarters has continued, with just over one in five (21%) having increased their capital expenditure on equipment, which is the same figure as Q3. 60% reported that they retained existing levels of spending in this area, and 19% reported revising it downwards. Just under a quarter (23%) increased their investment expenditure for training, which is 5 percentage points lower than last quarter, 65% made no change and 12% decreased spending in this area.
TURNOVER
Balance
▼ 1 Point ▲
62%
=
28%
▼
11%
QUARTERLY BUSINESS REPORT Q4 2023
WORKFORCE & RECRUITMENT In Q4, the workforce balance score fell by one point to 58. 26% of businesses surveyed reported that they increased their workforce headcount this quarter, which is four points lower than Q3 2023 and the lowest figure recorded since Q3 2022, however, 36% expect to grow their workforce over the next 3 months. A majority, 64%, retained the same number of employees in Q4, and 10% reported that they employed fewer people in Q4 than in Q3.
WORKFORCE
Balance
▼ 1 Point ▲
26%
=
64%
▼
10%
56% OF FIRMS ATTEMPTED TO RECRUIT
OF WHICH
72%
Looking at recruitment trends, this quarter’s data reveals that the recruitment difficulties of the last 18 months have persisted. 56% of businesses attempted to hire new staff this quarter (4 percentage points lower than in Q3 2023 and the lowest figure since Q3 2022) and of those, 72% had difficulty finding appropriate candidates (the same figure as last quarter, and the highest recorded since Q2 2022). Many more manufacturers attempted to recruit than the cross sectoral average (76% compared to 56%), and 82% had difficulty in doing so, especially when attempting to hire skilled manual/technical staff which was reported by 44%. 51% of services firms attempted recruitment in Q4 of which 70% cited experiencing problems, with professional and managerial level roles presenting the most challenges. From September to November 2023 in the West Midlands, the employment rate (for those aged 16-64) increased by 0.1 percentage point on the quarter to 75.2%, the unemployment rate remained largely unchanged at 5.3% and the economic inactivity rate decreased by 0.1 percentage point to 20.6%. These changes were mirrored in national figures: across the UK the employment rate increased by 0.1 percentage points on the quarter to 75.8%, the unemployment rate was largely unchanged at 4.2% and the economic inactivity rate decreased by 0.1 percentage points to 20.8%.
FACED RECRUITMENT DIFFICULTIES
Cost pressures remain prevalent for businesses across the region as growth projections remain subdued. The UK economy returned to growth during November but remains at risk of a technical recession. The Office for National Statistics (ONS) reported an early estimate for output growth of 0.3 per cent for the month, with key contributing factors to this growth being Christmas shopping and the Black Friday sales which, when seasonally adjusted, have driven a 1.3% growth in retail sales volumes. Whilst this is positive news for the retail sector, which has experienced over three years of relentless challenges, the unexpected uptick in December’s inflation rate to 4.0% could mean that a recovery in consumer spending is delayed, and that the overall economic outlook is less optimistic than economists hoped.
Raj Kandola Director of External Affairs Greater Birmingham Chambers of Commerce
QUARTERLY BUSINESS REPORT Q4 2023
All eyes will now turn to the Bank of England to see how they respond from a monetary policy point of view – with many businesses now hoping that we’ve seen the last of interest rate rises. However, changes to monetary policies alone are unlikely to help the Government reach it’s 2% inflation target – clearly, fiscal intervention will also be required to alleviate the cost pressures that many firms to continue to face. With the Spring Budget and General Election on the horizon, now is the right term for the Government to set out its blueprint for growth.
About 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 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. Join the conversation by following at @grbhamchambers and using #GBCCQBR
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