Quarterly Economic Survey - Q1 2025

Introduction

The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber from 10/02/25 and 10/03/25 in the first quarter (Q1) of 2025. This regular survey asks businesses a series of questions on key economic indicators.

Summary

In total, there were 377 responses. Of these, 34.0% can be broadly classified as Manufacturers and 66.0% as Service Sector businesses.

Out of 377, 41.0% of respondents were micro, 30.0% were small and 21.0% were medium-sized businesses. 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) decreased by 0.5% compared to the previous three-month (August to October 2024) period to 4% in the October to December 2024 period. Youth (16-17 years) unemployment increased sharply from 24.9% to 40.3% over same time period. Nationally, the number of job vacancies for the period of November 2024 to January 2025 was 819,000 showing a further fall in the number of vacancies by 9,000 from August to October 2024 period. This was 31st consecutive decline in number of job vacancies with numbers decreasing in 11 out of the 18 industry sectors.

According to Bank of England’s latest Monetary Policy report, inflation is set to increase temporarily before falling to 2% target and interest rates have been cut to 4.5%. Looking at the exchange rates, the GBP stands at €1.20 in March’25 – an increase by €0.1 to December’24. The latest data from Department for International Trade (Q3 2024) show exports valuing £6.48 billion from the East Midlands region.

Region at a Glance

*Net Value = Increase - Decrease

State of Economy Index

Compared to previous quarter, the current quarter saw slight fall in the state of economy index. The value for first quarter of 2025 is -67.

Results

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

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

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

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

During the last 3 months, has your labour force:

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 Q1 2025)

If you have recruited over the past 3 months, what type of positions were they: (latest quarter Q1 2025)

During the last 3 months, has the cash-flow:

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 Q1 2025)

Commentary

Economic instability hits sales and orders while businesses hold back on investment

Comments from East Midlands Chamber Director of Policy and Insight Richard Blackmore

  • Overseas trade showed a modest improvement with some recovery seen in export orders compared to the previous quarter.
  • Recruitment difficulties remain high, although there is a slight improvement in businesses looking to hire compared to Q4 2024.
  • There continues to be increased pressure on cashflow for many businesses while inflation and corporate taxation remains the top concerns of businesses.
  • Overall confidence continues to soften with business showing less optimism about future profitability and turnover.

University of Leicester School of Business Professor of Finance and FinTech Mohamed Shaban said:

The QES Q1 2025 survey reveals a declining business confidence in the East Midlands, capturing significant trends that resonate with the broader economic challenges facing the UK. While the global shift towards higher tariffs poses risks to the country’s growth, the potential for forging closer ties with Europe offers a beacon of hope. Proposed changes to the housing and development planning system have the potential to invigorate business activities in certain cities across the UK. Focused on fiscal responsibility, the tight budgetary approach may lead to necessary adjustments in spending, prompting economists to anticipate potential tax increases or cuts.

These elements underly a climate of uncertainty that profoundly impacts business confidence, particularly among East Midlands companies. Concerns about operational costs are leading businesses to reevaluate their investment and hiring strategies. Furthermore, the increases in National Insurance contributions and the minimum wage could create additional challenges for profit margins. This uncertainty complicates economists’ predictions for the UK’s economic growth: the 2025 GDP growth forecast ranges from 1.2% to 2.0%, with the lower end reflecting a cautious outlook influenced by unfavourable US tariff policies.

On a brighter note, it’s inspiring to see that 60% of businesses are committed to maintaining investments in crucial areas like machinery. This dedication to productivity and efficiency amidst challenges is truly commendable.

Moving forward, stabilising the economic environment and bolstering business confidence will rely more on the evolving global political landscape and the US administration’s announcements regarding geopolitical tensions and tariff policies.

In conclusion, the interconnected issues facing the East Midlands highlight the need for a collaborative approach to foster stability and support across all sectors, creating an environment where businesses can thrive against the odds.