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Quarterly Economic Survey - Q2 2023

Introduction

The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber from 15/05/23 and 09/06/23 in the second quarter (Q2) of 2023. This regular survey asks businesses a series of questions on key economic indicators.

Summary

In total, there were 340 responses. Of these, 35.0% can be broadly classified as Manufacturers and 65.0% as Service Sector businesses.

Out of 340, 41.0% of respondents were micro, 34.0% were small and 19.0% were medium-sized businesses. Only 6.0% of respondents were large businesses.

42.0% of respondent businesses were active in international markets.

Wider Economic Context

The unemployment rate for East Midlands reported by the Office for National Statistics (ONS) decreased by 0.2% compared to the previous three-month (Dec’22 to Feb’23) period to 3.3% in the Feb’23 to Apr’23 period. Youth (16-17 years) unemployment increased from 15.8% to 16.2% compared to previous quarter. Nationally, the number of job vacancies for the period March’23 to May’23 was 1,051,000 which is 11th consecutive period showcasing fall in the number of vacancies.

According to Bank of England’s latest Monetary Policy report, inflation is too high around 10% from previous summer, well above the target of 2%. Looking at the exchange rates, the GBP stands at €1.13 in May’23 – €0.01 lower than in Feb’22. The latest data from Department for International Trade (Q1 2023) show exports valuing £6.42 billion from the East Midlands region.

Region at a Glance

*Net Value = Increase - Decrease

State of Economy Index

Compared to previous quarter, this quarter saw slight growth. The state of economy index value for the current quarter is 127.

Results

For businesses involved in the UK market, looking at the past 3 months (excluding seasonal variations), has your activity/sales/custom: (trend over 4 quarters)

For businesses involved in the UK market, for the next 3 months (excluding seasonal variations), have orders/advanced custom/bookings: (trend over 4 quarters)

For businesses involved in overseas markets, over the past 3 months (excluding seasonal variations), has your activity/sales/custom: (trend over 4 quarters)

For businesses involved in overseas markets, for the next 3 months (excluding seasonal variations) have orders/advanced custom/bookings: (trend over 4 quarters)

During the last 3 months, has your labour force: (trend over 4 quarters)

Over the next 3 months, do you expect your workforce to: (trend over 4 quarters)

Have you attempted to recruit within the past three months? (trend over 4 quarters)

If you have recruited over the past 3 months, did you experience any problems in finding suitable staff? (trend over 4 quarters)?

For which job types did you experience a problem: (latest quarter Q2 2023)

If you have recruited over the past 3 months, what type of positions were they: (latest quarter Q2 2023)

During the last 3 months, has your cash-flow: (trend over 4 quarters)

Are you currently operating at: (trend over 4 quarters)

Over the next 3 months, do you expect your prices to: (trend over 4 quarters)

Is your business currently suffering pressures to raise its prices as a result of any of the following: (latest quarter Q2 2023)

What changes have you made to your investment plans for plant / machinery / equipment: (trend over 4 quarters)

Over the past 3 months, what changes have you made to your investment plans for training: (trend over 4 quarters)

Over the next 12 months do you expect your turnover to: (trend over 4 quarters)

Over the next 12 months do you expect your profitability to: (trend over 4 quarters)

Which of the following are more of a concern to your business than 3 months ago: (latest quarter Q2 2023)

Chamber Commentary

Against a backdrop of continued concerns about stubbornly high levels of inflation, low growth and Bank of England decision-making, the results from the Chamber’s second Quarterly Economic Survey of 2023 suggest the East Midlands economy is bucking the trend and performing well – with improvements seen in sales activity, cashflow and pricing expectations.

There was also a second consecutive fall in the number of businesses reporting difficulties in recruitment, down to approximately seven in 10 of all those looking to employ new staff, compared to eight in 10 at the end of last year.

While performance as judged by these results is relative to what’s come before, responses to questions around concerns and events driving price pressures give further credibility to the argument that factors such as higher utility costs, inflated wage settlements and expensive fuel are all easing as problems for businesses during 2023.

The percentage of businesses reporting pressure to increase their own prices has fallen sharply, down to 36% – compared to 54% last quarter and 60% three quarters ago – with a corresponding growth in those looking to keep prices the same, suggesting many of the increased costs have now been passed on.

While messaging from policymakers and media remains tentative, the mood music among businesses is much more positive, with 41% of firms now expecting their profitability to grow over the next quarter, an increase over the previous three quarters from 38%, 34% and 28% respectively. In contrast, those expecting a drop in profitability has fallen from 41% in Q3 2022 to 26% this quarter.

We’re clearly not completely out of the woods yet – advanced orders saw a slight slowdown and investment intentions remain stubbornly low – however, the regional economy is continuing the pick-up that began at the start of this year. A more stable policy environment over recent months will have supported an improvement in sentiment.

As we get closer to a general election, it’s important that politicians and institutions behave responsibly with regards to policy announcements and fiscal decisions. The UK economy has already defied the expectations of six months ago. It’s important to capitalise on this now and not do anything that may inadvertently rocking the boat.