Quarterly Economic Survey Q1 2024: Businesses Treading Water on Investment
The BCC’s Quarterly Economic Survey – the UK’s largest and longest-running independent business survey – shows most businesses reporting no improvement in investment levels, sales or cashflow in the first quarter of 2024.
After a slight rise in Q4, levels of business confidence have remained static. For the second quarter in a row, 56% of businesses say they are expecting an increase in turnover over the next year.
With inflation likely to remain volatile over the coming months – the data also reveals that more businesses expect hikes in their own prices, with staffing costs being the main pressure.
The survey, conducted between 12 February and 12 March, of over 4,800 businesses across the UK – 92% of whom are SMEs (fewer than 250 employees) – also reveals business performance across different sectors varies considerably.
Summary
- No overall improvement in business conditions in Q1 2024 as measured by investment, sales and cashflow.
- Levels of business confidence remain unchanged, with 56% of UK businesses expecting an increase in turnover in the next twelve months.
- Almost half of businesses are expecting the price of their goods or services to rise.
- Interest rates continue to slowly decline as a concern for businesses.
- Hospitality sector continues to struggle disproportionately, with 39% of these businesses reporting a decrease in their cash flow, compared with 28% of respondents overall.
No improvement in overall business conditions
The percentage of respondents reporting increased domestic sales stayed at 36%, the same level as Q4. Likewise for the second quarter in a row, 22% reported a decrease and 42% said sales had remained constant.
But there were significant sectoral differences. 44% of professional service businesses said they had seen a boost in sales, whereas only 27% of logistic companies and 29% of retailers saw an increase.
Business confidence remains unchanged
56% of businesses expect to see their turnover increase over the next 12 months – the same as Q4 2023. Only 14% of respondents are expecting to see their financial situation worsen in the year ahead, 29% expect things to remain the same.
Profitability confidence has remained static, with 48% of companies saying they expect profits to increase in the next year. That compares to 47% in Q4. 21% of respondents believe their profits will fall.
Most businesses still not increasing investment
Economic headwinds continue to impact heavily on business investment. The majority of businesses say they haven’t increased the amount of new plant, machinery and equipment they’ve bought or rented. Only 24% reported an increase in investment (the same as Q4), while 60% said levels had remained the same, 16% reported a decrease.
There are large sectoral disparities in investment levels. 28% of hospitality sector businesses say they have decreased investment, while 30% of manufacturing businesses have increased investment.
Many businesses expect their prices to rise
Although inflation has slowed significantly in recent months, almost half of businesses are expecting the price of their goods or services to rise. 46% of respondents are predicting an increase (compared with 47% in Q4), 51% think prices will stay the same, and just 3% are anticipating a decrease.
Labour costs are cited as the main cost pressure across all businesses. For the second quarter running, 68% of responding businesses say they are under pressure to raise prices because of staffing costs. Some sectors are feeling this pressure more than others, with 77% of hospitality businesses and 76% of manufacturers citing it as a key driver.
Interest rates continue to decline as a concern
While inflation remains businesses’ biggest concern, business worries about interest rates continue to gradually fall. 35% of businesses say they are concerned about the cost of borrowing, compared with 39% in Q4. These figures remain high compared with the pre-Covid trend.
Suzanne Caldwell, Managing Director of Cumbria Chamber of Commerce said:
“The results of the Quarterly Economic Survey for Q1 2024 show that challenges including inflation, skills shortages, trade barriers and a lack of clear direction from government on investment, are negatively impacting businesses across the UK and here in Cumbria.
The lack of investment among most SMEs is of great concern. Government moves on rate relief, planning reform and full expensing are welcome – but they haven’t yet shifted the dial.
While the recent rise in the national living wage (NLW) will be welcomed by millions of employees, it comes at a time when businesses are already struggling with rising wage bills. Given the scale of the increase, incomes have been raised for many people who weren’t close to the previous NLW. Through the impact on differentials, this likely to affect many more salaries, further increasing the impact on employers.
As we move towards the next general election, politicians must remain focussed on supporting businesses to grow. All parties should be looking closely at these results to gain an understanding of the reality for SMEs here on Cumbria and across the country.”
What Cumbrian businesses say:
“My turnover is down 75% compared to the same time last year… not a good omen for the coming months.” – Hospitality business
“Turnover and profitability to reduce in 2024/25 due to lower number of property sales expected. This is planned and reflects the availability of planning permission for new social homes.” – Letting agent
“Profit nullified by salary demands due to rising cost of living and inflation.” – Retail business
“Our expenses are going up but profits are not. We invest in our team with courses and treats to retain and attract staff. This will not be possible to continue to the same extent if profits continue to decrease as they currently are doing.”
“We’re finding it incredibly difficult to invest and move the company forward, due to several issues, money is tight, margins are tight, minimum wage causes heavy extra costs across the board, Business Rate relief is to end next year, we SMEs need as much help as we can get and I don’t see that help coming, which would spell disaster for our company as well as all the other small companies out there.” – Hospitality business
© Cumbria Chamber of Commerce