Quarterly Economic Survey - Q3 2023

Introduction

The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber from 21/08/23 and 14/09/23 in the third quarter (Q3) of 2023. This regular survey asks businesses a series of questions on key economic indicators.

Summary

In total, there were 296 responses. Of these, 34.0% can be broadly classified as Manufacturers and 66.0% as Service Sector businesses.

Out of 296, 38.0% of respondents were micro, 34.0% were small and 20.0% were medium-sized businesses. Only 8.0% of respondents were large businesses.

46.0% 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 (Feb’23 to Apr’23) period to 4.1% in the May’23 to Jul’23 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 Jun’23 to Aug’23 was 989,000 which is 14th consecutive period showcasing fall in the number of vacancies.

According to Bank of England’s latest Monetary Policy report, inflation is falling but still too high. It is expected to reach the target of 2% by early 2025. Looking at the exchange rates, the GBP stands at €1.16 in Sep’23 – €0.03 higher than in May’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 103.

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 Q3 2023)

If you have recruited over the past 3 months, what type of positions were they: (latest quarter Q3 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 Q3 2023)

Chamber Commentary

Slowdown in demand hits in Q3

Following a strong first half of the year, the results of the Quarterly Economic Survey for the third Quarter of 2023 suggest the impact of 14 consecutive interest rate rises between November 2021 and this summer may be starting to have effect.

Both domestic and international sales activity slowed quarter-on-quarter, with advanced orders remaining flat. Growth in workforce remained at a similar level to the previous quarter, but future prospects for employment in the region dropped by a third.

There was a small increase in businesses increasing their intentions to invest in machinery, but this was offset by a reduction in those looking to spend more on training. Overall confidence in turnover and profit growth was subdued.

In a further sign the heat has come out of inflation, the percentage of businesses anticipating they will need to put up prices has fallen to 30% – almost half of what it was 12 months ago. The pressure from the price of raw materials, utilities and labour costs has all softened, with only a small increase in businesses reporting greater price rise pressures from the fuel pump.

For several quarters now, the results of this survey have run counter to the wider mood music in the economy. However, for the first time since the start of the year, the Chamber’s State of the Economy Index – a barometer measuring a combination of activity and sentiment indicators – has dropped back, albeit only slightly.

With regards to what this all means, next quarter’s results will be telling. The September decision by the Bank of England to keep interest rates as they are has been welcomed by many businesses. They feel the Bank’s desired impact – to soften demand – is already being seen, with a lag time between the Bank’s decision and any actual effect taking hold.

Key now will be to see how far the slowdown will go. Any talks of a recession are premature, and with inflation now coming down steadily – and the uncertainty of a General Election on the horizon – it is important the economy can find its new level quickly and confidence can return to consumers and businesses alike.