To coincide with its International Trade Conference taking place in London today (Thursday), the British Chambers of Commerce (BCC) is publishing the results of its Quarterly Economic Survey for Q3 2014. The survey, made up of responses from more than 7,000 businesses across the UK, shows that whilst the economy is still growing, it slowed in Q3. Balances for both manufacturing and service sector exports were down on the quarter, highlighting the challenges facing UK exporters
A decline in the rate of growth in Q3 for the UK manufacturing sector reinforces the BCC's most recent Economic Forecast that predicted economic growth would slow leading into 2015. BCC Director General, John Longworth, says the results for domestic manufacturing and exports in this quarter may be the ‘first alarm bell' to warn of slower economic growth. The BCC is recommending that all political parties show support for the proposals within its Business Manifesto: ‘A Business Plan for Britain' [1] to create the best possible environment for growth and enterprise.
Key findings in the Q1 2014 Quarterly Economic Survey:
- For manufacturing, two balances fell steeply in Q3 2014; domestic sales (+23%, down from +42% in Q2) and domestic orders (+24%, down from +41% in Q2). This is in contrast to three all-time high balances in Q2 2014.
- For services, balances remained largely unchanged but stayed at a historically high level; domestic sales (+35%) were stable and domestic orders (+29%, down from +30% in Q2) fell slightly.
- The balance of manufacturing firms operating at full capacity fell by 6 points to +40% in Q3, while the number of service firms operating at full capacity rose to a very high level (+46%).
- All export balances fell in Q3, for both exports and services; manufacturing export sales fell from +30% in Q2 to +16% in Q3, while service export sales dropped by 17 points to +14%.
- Business confidence remains higher than the 2007 pre-recession levels, for both manufacturing profitability (+54%) and service sector profitability (+45%).
- The manufacturing employment balance rose from +30% in Q2 to +32% in Q3. The balance for services sector employment increased from +19% to +28% over the same period.
- In the manufacturing sector, the cashflow balance remained at +17%, five points below its last peak in Q3 2013. The service sector cashflow balance increased by five points to +22%, the highest on record.
- The manufacturing price balance (intentions to raise prices) increased by one point to +18%, whilst the price balance for the service sector increased by three points to +22%.
Commenting on the results, John Longworth, Director General of the BCC, said:
"The British economy has strengthened significantly since the recession but to say that strong growth cannot be sustained indefinitely is simply not good enough. To avoid sinking back into mediocrity we must steer clear of measures that dampen business confidence and press ahead with reforms to the business environment.
"As we predicted in our economic forecast, the strong upsurge in UK manufacturing at the start of the year appears to have run its course. We may be hearing the first alarm bell for the UK economy, but this need not be the case. The share of manufacturing firms operating at full capacity fell in Q3, signalling that there is more spare capacity in our production sector than previously thought. Concerns over the strength of the pound are also high and rising. Together with a worsening outlook for the eurozone, these factors reinforce the case against an early interest rate rise.
"The disappointing decline in exports highlights that we must do something radically different. Britain faces a major challenge in improving its trade performance, so we must waste no time in supporting trade opportunities to overseas markets which offer sustained growth. Only a concerted national campaign and sustained investment will allow more UK firms to look beyond our shores for growth opportunities.
"If we in Britain are serious about promoting business investment we must remove some longstanding barriers. Access to growth finance for small, ambitious firms remains insufficient. The business rates firms pay are the highest in Europe and a major disincentive for investment. We are calling on the government to freeze business rates for all companies until 2017's planned full revaluation of premises, and perform a review and reform of the broken business rates system by 2022."
David Kern, Chief Economist at the BCC said:
"These results point to continued UK economic growth, but the pace is easing. The signs of the slowdown are particularly noticeable in manufacturing, where all the key domestic and export balances recorded declines in Q3. The multiplier effects of a rise or fall in industrial production are important, not least for those regions of the UK whose traditional dependence on manufacturing industries remains high.
"Services remain more resilient than manufacturing, but there were disappointing declines in the service export balances between Q2 and Q3 2014. In contrast the Q3 results are positive for employment, cashflow and business confidence.
"Noticeable falls in all the export balances and increased signs of slower growth require a forceful policy response. UK growth cannot rely permanently on consumer spending, and on unsustainable current account and budget deficits. Unless exports and investment play a bigger role in growth, the recovery will stall.
"With inflation well below target and with earnings still rising annually by less than 1pc, it is clearly unjustified to endanger the recovery with a premature increase in official interest rates. To sustain growth, the MPC must reassure businesses that rates will only start edging up if and when objective circumstances require such a move. On its part, the Government must strengthen support for exporters and improve access to finance for growing businesses."