Home Business News Leading indicator of UK GDP growth shows key economic indicators flashing red, BCC warns

Leading indicator of UK GDP growth shows key economic indicators flashing red, BCC warns

by LLB Finance Reporter
4th Jul 22 12:20 pm

The British Chambers of Commerce (BCC’s) Quarterly Economic Survey (QES) for Q2 2022 – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – shows key economic indicators flashing red.

The survey of over 5,700 firms revealed a weakening in the proportion of firms reporting increased domestic sales, investment intentions, and longer-term turnover confidence.

Measures for investment and longer-term business confidence have slipped back

Indicators for turnover and profitability confidence, as well as investment, all worsened from their Q1 positions. Firms expecting an increase in turnover over the next twelve months dropped from 63% to 54%, this is the lowest figure since Q4 2020 when much of the UK was under some form of lockdown.

Confidence in profitability also took a significant knock with 43% predicting an increase, down from 50% in Q1. More than a quarter (28%) are now predicting a decrease in profits.

Unsurprisingly, this declining confidence in business performance has affected firms’ plans to increase investment, with 3 in 4 (75%) saying they have no plans to do so (up from 73% in Q1)

This metric has remained largely unchanged since Q2 2021.

Inflationary pressures continue to exceed record highs

65% of firms now expect their prices to rise in the next three months, up from 62% in Q1, a record high and a 23-percentage-point rise on a year ago. Only 1% overall expect a decrease in their prices.

Expected price rises are being felt most acutely in the retail and wholesale sector, and construction and engineering sector, both at 78%, with production and manufacturing only slightly behind at 77%.

When measured as a net balance (the percentage of respondents reporting an increase minus those reporting a decrease), price expectations are now the highest since records began for this indicator in 1997 for both the manufacturing (+76%) and services sectors (+56%).

When firms were asked which factors were driving price rises, 67% cited utility bills, 66% labour costs, 56% fuel and 53% raw materials.

In the three sectors worse affected (Retail & Wholesale, Construction & Engineering, Manufacturing & Production) all three cited raw materials as the biggest factor.

When asked what external factors were more of a concern to their business than three months ago, 82% of firms cited inflation. This is the highest on record and a rise from 77% in Q1 (the previous record).

The percentage citing interest rates as a concern also rose for the third quarter running; 1 in 3 (33%) reported interest rates as a concern, up from 32% in Q1.

Business activity remains buoyant but on downward trend

41% of respondents overall reported increased domestic sales in Q2, down from 42% in Q1, and the third consecutive quarterly fall. 18% reported a decrease, the same as the previous quarter.

In the services sector, the balance of firms reporting increased domestic sales stood at +24%, compared to +21% in Q1. In the manufacturing sector, the balance of firms reporting increased domestic sales fell to +19% in Q2, the lowest level since Q1 2021.

David Bharier, Head of Research at the BCC said, “This quarter’s survey results clearly point to a weakening economic outlook amid unprecedented cost pressures and falling business confidence.

“Domestic demand continues to show buoyancy, with almost half of respondents reporting increased domestic sales in the quarter.

“However, indicators for structural business conditions such as investment, and cash flow, are showing no sign of improvement for most firms.

“Inflation remains by far and away the top concern, with our survey measures going beyond anything we’ve seen before in the history of the data.

“Businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labour.

“The continuing supply chain crisis, exacerbated by conflict in Ukraine and lockdowns in China, has further compounded this.

“Some sectors are far more impacted than others. Manufacturers, retailers, and hospitality firms have been sounding the alarm on inflation for 18 months.

“Against this backdrop, it is no surprise that business confidence for the months ahead is waning as we enter a period of heightened economic uncertainty.”

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