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Quarterly Economic Survey - Q4 2023

Introduction

The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber from 06/11/23 and 30/11/23 in the fourth quarter (Q4) of 2023. This regular survey asks businesses a series of questions on key economic indicators.

Summary

In total, there were 370 responses. Of these, 36.0% can be broadly classified as Manufacturers and 64.0% as Service Sector businesses.

Out of 370, 39.0% of respondents were micro, 33.0% were small and 22.0% were medium-sized businesses. Only 6.0% of respondents were large businesses.

41.0% 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) increased by 0.8% compared to the previous three-month (February to April 2023) period to 4.1% in the May to July 2023 period. Youth (16-17 years) unemployment decreased drastically from 16.2% to 5.2% compared to previous quarter. Nationally, the number of job vacancies for the period August to October 2023 was 957,000 showcasing fall in the number of vacancies by 58,000 from May to July 2023.

According to Bank of England’s latest Monetary Policy report, inflation has fallen and is expected to fall further this year. The interest rates will be high enough for long enough to reach the target of 2%. Looking at the exchange rates, the GBP stands at €1.15 in Dec’23 – €0.01 lower than in Sep’23. The latest data from Department for International Trade (Q2 2023) show exports valuing £6.98 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 fall. The state of economy index value for the current quarter is 82.

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 Q4 2023)

If you have recruited over the past 3 months, what type of positions were they: (latest quarter Q4 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: (trend over 4 quarters)

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 Q4 2023)

Chamber Commentary

A stuttering end to 2023 but fundamentals remain strong

The Quarterly Economic Survey results for 2023 can be viewed as a game of two halves. Q1 and Q2 saw a general improvement in activity and sentiment, reversing a downward trend that existed throughout 2022.

This improvement ended in the third quarter, with a small overall slowdown that has continued into these latest findings.

Behind this slowdown is a decrease in advanced orders – both at home and overseas – along with a weakening labour market, flat investment intentions and a decline in cashflow performance.

So what has been driving this, and what are the prospects for 2024? The answers are perhaps both fiscal and political.

First, the fiscal. Due to inflationary concerns, we’ve experienced an extended period of increases in the base rate by the Bank of England – 14 successive rises since the end of 2021 to reach 5.25%, before being held for the past couple of decision-making cycles.

Chamber members have been stressing the lag-time between interest rate increases and subdued consumer demand, and it may well be that lag period has now passed and we’re experiencing the full impact of that prolonged, proverbial belt-tightening.

Away from this, we’re also experiencing an unpredictable political environment, with multiple ‘re-sets’ as the country gears up for a General Election, likely at some point next year. This has meant an increase in policy announcements, arguably with more of an eye on positioning as opposed to meaningful growth strategies for UK plc.

Looking at historical trends via our State of the Economy Index, it’s not unusual to see things slow down ahead of an election – the concern is that continued uncertainty about when this might take place could act to lengthen the duration of this for businesses.

But it’s not all doom and gloom. While things have slowed, they’ve certainly not fallen off a cliff. And these macro numbers hide various experiences in members – while overall things might be down, we hear numerous stories of businesses experiencing good growth and with strong investment intentions for the coming year.

Interestingly, these stories don’t necessarily follow sectoral patterns, suggesting sentiment might be playing a larger role in the overall trends than might be appreciated.

Sentiment is an incredibly powerful – and often underestimated – factor in economic activity. While undoubtedly not the only game in town, as we move into 2024 it is essential we don’t end up talking ourselves down when many of the business fundamentals remain strong, with sales up and outlook for turnover growth positive.

As businesses seek surety over the environment into which they’ll be investing over the coming 12 months, it’s incumbent on all parties to ensure we don’t allow the nature of our political cycles to mean we are found wanting.