Quarterly Economic Survey Q1 2022

The British Chambers of Commerce Quarterly Economic Survey (QES) for Q1 2022 – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – shows inflationary pressures on businesses reaching levels never previously recorded in its 33-year history.

Nearly 2 in 3 (62%) businesses expect to raise prices, a new historical high
More than 3 in 4 (77%) cite inflation as a growing concern for their business, also an historical high
Indicators for cash flow weaken as cost of doing business crisis escalates

The survey of over 5,600 businesses nationally also revealed a continuing stagnation in the proportion reporting increased domestic sales and investment, while cashflow weakened slightly in Q1.

Business activity

42% of respondents overall reported increased domestic sales in Q1, down from 45% in Q4. 18% reported a decrease, up from 16% the previous quarter.

In the services sector, the balance of businesses reporting increased domestic sales dropped to +21% in Q1, from +26% in Q4.

In the manufacturing sector, the balance of businesses reporting increased domestic sales was +24% in Q1, up from +22 in Q4

Inflationary Pressures

62% of businesses expect their prices to rise in the next three months, which is another record high figure for this metric and an increase from 58% in Q4. Only 1% overall expect a decrease in their prices.

For production & manufacturing firms, this rises to 75% and stands at 75% for retailers and wholesalers, 70% for construction firms, and 72% for transport and distribution firms. These are also the highest on record.

When businesses were asked what pressures they were facing to raise prices, from a list of factors, 92% of manufacturers cited raw materials, 56% cited other overheads (the majority of respondents comments related to energy costs and transport costs), 34% cited pay settlements, and 19% cited finance costs.

When asked what was more of a concern to their business than three months ago, 77% of businesses cited inflation which was the highest on record and a rise from 66% in Q4

The percentage citing interest rates as a concern also rose in the quarter. Nearly 1 in 3 (32%) reported interest rates as a concern, up from 27% in Q4.

Cash Flow & Investment

Indicators for both cash flow and investment have shown no sign of recovery since the start of the Covid-19 shutdown.

For businesses overall, 28% reported an increase to cash flow, a drop from 31% in Q4. 26% reported a decrease, up from 23% in Q4.

Investment in plant, machinery, or equipment continued to stagnate, with 27% overall reporting an increase, while 58% reported no change, and 15% a decline. This metric remains largely unchanged since Q2 2021.

Reacting to the findings, Suzanne Caldwell, Managing Director of Cumbria Chamber of Commerce said:

“The latest survey points to a solid first quarter for the UK economy, as the release of pent-up demand following the end of Plan B restrictions and reduced consumer concerns over Omicron helped support business activity. But the figures also highlight the significant headwinds facing the UK economy, which must give us all real cause for concern.

Historically high price pressures suggests that the current inflationary surge will escalate significantly in the coming months. The reversal of the hospitality VAT cut, the higher energy price cap and soaring energy and commodity prices amid Russia’s invasion of Ukraine, should lift inflation well above 8% in the near term. It’s also worth remembering that for a range of inputs businesses are already facing cost increases very significantly higher than that – as indeed are consumer.

The level of inflationary pressures has soared to record levels and we are now in uncharted territory – or at best territory for which we have long since lost the maps! Businesses cite cost increases coming at them from all angles, ranging from energy bills to raw material prices and the imminent rise in National Insurance.

The situation is alarming and we need to be absolutely clear. This cost of doing business crisis is squeezing finances, driving further increases in prices and directly fuelling the cost-of-living crisis.

The Spring Statement was a missed opportunity to ensure business have greater resilience to weather the uncertain and volatile times ahead.

We cannot wait for the Autumn Budget. At the very least, the Government must provide urgent financial support, through the expansion of the energy bills rebate scheme, to include small and energy intensive businesses, along with an SME energy price cap to protect smaller businesses from some of the price increases.”