Thursday 5th Oct 2023

BCC Quarterly Economic Survey Q3 2023 results

Just two fifths of UK firms (41%) now expect their prices to increase in the next three months, down from 55% in Q1.
Labour costs are the biggest driver of price rises, across most sectors, cited by 66% of all businesses.
Domestic sales, cashflow, turnover and profitability indicators are stable but remain at a low level.
Business investment continues its long-term flatlining trend with only 23% seeing an increase, as the percentage of firms worried about interest rates rises to 45%.

The BCC’s Quarterly Economic Survey (QES) for Q3 2023 shows the percentage of firms expecting to raise prices in the next three months has fallen for the fifth consecutive quarter.

The data also reveals that for the second quarter running the main factor for increasing costs is coming from wages.

The survey, by the BCC’s Insights Unit, of over 5,000 firms – 91% of whom are SMEs – also reveals business performance across different sectors varies considerably. The research took place between 21 August and 14 September before the Bank of England decided to hold the interest rate at 5.25%. Respondents were split into 28% manufacturing and 72% services industries, with 48% exporting.

Activity in the service sector ticks up but manufacturing is lagging behind

The percentage of all firms reporting increased domestic sales remained unchanged from Q2 at 35%. Meanwhile 23% reported a decrease and 42% reported no change. But the services sector saw a larger bump with 36% seeing an increase, diverging from manufacturers, where 29% saw an increase.

For cashflow, more businesses saw an improvement rather than a decline – a reversal of the situation in Q1 and Q2. But the changes remain small, as 28% of businesses said their cash flow has improved over the last three months (26% in Q2), while 26% have seen it decline (29% in Q2).

After a rocky end to 2022, business confidence bounced back and has now stabilised.

The percentage of firms expecting to see their turnover increase over the next 12 months stood at 53% for Q3, broadly similar to Q1 (52%) and Q2 (54%) but up significantly from Q3 and Q4 in 2022 (both 44%). Only 16% expect a decrease in the next twelve months.

Profitability confidence also remains stable at 45%, up from 44% in Q2, although it continues to remain weaker than turnover confidence. 23% expect a decrease in the next twelve months.

This recovery in confidence in 2023 is yet to feed into increased business investment.

The percentage of respondents reporting an increase to investment in plant/equipment remains stuck at 23%, while 59% reported no change and 18% saw a decrease.

Over the last six years the number of firms increasing investment has dropped as low as 9%, at the start of the pandemic, but it has never gone higher than 28% (Q1 2018). The hospitality sector remains under additional pressure with 33% reporting a decrease in investment, and 22% an increase.

Inflationary pressures continue to ease but remain the top concern.

The percentage of firms expecting their prices to rise fell for the fifth consecutive quarter. Two-fifths of firms (41%) now expect to put up prices in the next three months. This is down from an historic high of 65% in Q2 of 2022, indicating inflationary pressures are continuing to ease.

While inflation remains firms’ biggest concern, the level has dropped for the third quarter running, with 65% of firms now worried compared to 69% in Q2. However there has been a corresponding 4 percentage point rise in businesses worried about interest rates, increasing from 41% in Q2 to 45% in Q3.

Labour costs are now the number one cost pressure for businesses.

Concerns around wage costs was the biggest pressure for most firms for the second quarter running, although the percentage worried has dropped from 68% in Q2 to 66% in Q3. However, worries about utility prices fell even further from 63% to 59%, creating clear water with wage costs as the number one issue.

But there remain wide sectoral differences with manufacturers citing wages (68%), raw materials (65%) and utilities (65%) in a three-way tie as main factors driving price increases. While in hospitality, 81% of firms were most worried about utility costs, with wages in second place at 74%. The retail sector was least worried about labour costs, with 52% citing it as an issue, against 59% flagging utilities and 58% raw materials.

Suzanne Caldwell, Managing Director of Cumbria Chamber of Commerce said:

“The QES data for Q3 2023 shows that business confidence has increased since the tail end of 2022. However, businesses are still concerned about issues including interest rates and labour costs, showing the need for increased focus on relieving the tight UK labour market. It’s also concerning that most businesses report no increase to their investment intentions. After the recent scrapping of the HS2 Birmingham to Manchester leg, businesses want to see a clear plan from government on long term investment.”

What businesses in Cumbria say:

“We are concerned that the present high interest rates will collapse the housing market and also lead to a lot of businesses collapsing which will be very damaging for us all. We appreciate that the BOE wants to reduce inflation but are concerned that it is going too far.” – Construction business

“The last 3 months – like the previous quarter have been bare survival. Renewed marketing efforts have produced an increase in small projects, but not the repeat long term work that I need to thrive. There does seem to be an improvement in confidence that is evident in my networking groups. I think this, alongside my own renewed marketing efforts has been a key factor.” – Marketing agency

“Very difficult trading conditions critical raw materials shortage due to inflation on all costs. This will not easily or short term fix.” – Agriculture business

“We can’t recruit staff because of a lack of interest because it is a manual skill and initially not as well paid – whilst being on an apprenticeship – as being for example a cashier.” – Construction business