Introduction

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The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber in the fourth quarter (Q4) of 2021. This regular survey asks businesses a series of questions on key economic indicators. The survey ran from 01/11/21 and 22/11/21.

Summary

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In total, there were 386 responses. Of these, 40.0% can be broadly classified as Manufacturers. 60.0% can be broadly classified as Service Sector businesses. 38.0% of businesses employed fewer than 10 people. 32.0% employed 10-49 people. 23.0% employed 50-249 people. 7.0% employed over 250 people. 47.0% of businesses were active in international markets over the course of past quarter.

Wider Economic Context

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The unemployment rate reported by the Office for National Statistics (ONS) remained at 4.2% in the July to September period this year, displaying similar figures compared to the previous three-month (April to June) period and 0.1% below the UK average. Youth (16-17 years) unemployment remains high at 19% with a huge decline compared over previous periods. Nationally, the number of job vacancies for the period August to October was 1,172,000 and is 388,000 above pre-pandemic level.

According to Bank of England’s latest report, inflation is above 2% due to high energy goods & prices and is expected to rise to 5% around the spring. Looking at the exchange rates, the GBP stands as strong as €1.19 in December – €0.02 more than in September. The latest data from Department for International Trade (Q2 2021) data show exports valuing £4.81 billion from the East Midlands region.

Region at a Glance

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*Net Value = Increase - Decrease

State of Economy Index

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Compared to previous quarter, this quarter saw slight fall. The state of economy index value for the current quarter is 290.

Your personalised results

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Chamber Commentary

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An uncertain end to an unusual year

Following on from a 2020 that no-one could have predicted, the majority of 2021 has been marked by a strong recovery for the East Midlands economy.

Our State of the Economy Index (SEI) – a combination of a range of indicators measuring both sentiment and activity – rose from a relative low of 20 SEI points at the end of last year to 152 in February, 335 in June and 353 in September.

But what do all these numbers really mean? Well actually, very little by themselves, but when you read them relative to what has come before and then follows, they offer some great insight.

In other words, it isn't necessarily the magnitude of the figure, but more the steepness of the rise or fall that can be telling for assessing where the economy is at.

For that reason, a Q4 SEI reading of 290 will be a disappointment for businesses and indicates an economy that continues to grow, but at a rate of pace that is slowing. Or to put it another way, over the past three months the brakes have started to be applied to parts of our economy.

When we dig a little deeper, we can start to see what the reality for businesses behind the numbers actually is.

In terms of prices, almost two-thirds expect to put these up over the coming quarter, rising to a staggering nine in 10 when looking solely at manufacturers.

The biggest driver of this continues to be raw material prices, although higher costs elsewhere, such as staffing, are also putting the squeeze on margins.

While many businesses spent much of 2021 trying to stave off passing these on to support competitiveness, additional pressures at the end of the year, including increased energy costs, seem to have provided the proverbial straw to break the camel's back.

Demand levels remain strong, but increasingly businesses are turning down opportunities in order to ensure they can honour existing commitments.

This time last year, 29% of respondents told us they were operating at full capacity – this has now grown to 42%, meaning less headroom in the economy to take on new work.

Part of that restricted capacity story is about people. While 64% of businesses attempted to recruit, eight in 10 of those struggled to find the right skills, which in part explains the increased staffing costs as businesses seek to attract and retain the talent.

One path out of this is to up investment in both machinery and training, growing productivity and adding to capacity levels.

Unfortunately, the uncertainty that's out there is making businesses tentative – intentions to invest in both these areas have dropped from last quarter and are at relative low levels given where you'd hope the economy to be at this stage of a recovery.

And this feeds through to overall confidence levels – both in terms of turnover and profitability, businesses are more downbeat than they were earlier in the year.

So what's the longer-term prospects for us – will any of these issues be continuous struggles or will we re-find our mojo in the new year? If there is a sign of hope then it comes from the fact that none of these difficulties are down to a lack of interest.

Demand is high and so, if businesses can be given the confidence to invest, if policy can support recruitment and if the global surge in activity starts to level out so supply-chains can find their pattern, there's no reason why the pace of growth won't pick up again in 2022.

And in conversations with businesses, they believe many of these things will happen – the current pressures are only temporary readjustments and will be resolved at some point next year.

So while on paper a slow-down in Q4 is disappointing, we know more now about what is going on in the wider economy than we did 12 months ago, and with the right support – and importantly no hindrance – from Government, there's every chance for a prosperous new year and 2022.