The BCC’s Quarterly Economic Survey (QES) for Q2 2023 shows that less than half of firms now plan to raise prices in the next three months as cost pressures ease.
But the data also reveals that the main factor for increasing costs is now coming from wages rather than utility bills or raw materials.
Less than half (45%) of UK firms expect their prices to increase in the next three months, down from 55% in Q1.
Labour costs are the biggest driver of price rises, cited by 68% of businesses.
Domestic sales, cashflow, turnover and profitability indicators all remain largely unchanged from Q1.
The survey, by the BCC’s Insights Unit, of over 5,000 firms – 92% of whom are SMEs – also reveals business performance across different sectors varies considerably, with hospitality and retail firms suffering more widely from cashflow difficulties.
The research took place between 15 May and 9 June and before the Bank of England increased the base rate to 5%. Respondents were split into 27% manufacturing and 73% services industries, with 47% exporting.
Growth in business activity remains weak, with no significant improvement to sales and cashflow data.
The percentage of firms reporting increased domestic sales remained largely static, with 35% reporting a rise (broadly unchanged from 34% last quarter). Meanwhile 24% reported a decrease and 41% reported no change.
For cashflow, more businesses continue to report a decrease, rather than an increase and again the picture remains largely unchanged since Q1. Just over one in four (26%) businesses said their cash flow has increased over the last three months (25% in Q1), while 29% have seen it decrease (30% in Q1).
Pressures remain highest in the retail and hospitality sectors with 38% and 37% respectively reporting reduced cashflow, while PR and Marketing was the most positive sector with 33% reporting growth.
After business confidence showed signs of a rebound in Q1 2023, it has now stalled again.
There was a small increase in the percentage of firms believing their business turnover will rise over the next 12 months, up to 54%, from 52% in Q1.
Profitability confidence also improved slightly to 44% from 42% in Q1, but it continues to remain weaker than turnover confidence.
This slightly improved outlook is not translating through to increased business investment.
The number of respondents reporting an increase to investment in plant/equipment dropped to 23% from 25% in Q1. Over the last six years this measure has dropped as low as 9% of firms, at the start of the pandemic, but it has never gone higher than 28% (Q1 2018).
Inflationary pressures continue to ease, but still remain the top concern.
The percentage of firms expecting their prices to rise fell below 50% for the first time since Q3 in 2021. It has fallen from 60% of firms in Q4 2022 to 45% in Q2 2023.
While inflation remains firms’ biggest concern, the level has dropped for the second quarter running, with 69% of firms now worried compared to 74% in Q1. However there has been a corresponding 5 percentage point rise in businesses worried about interest rates, increasing from 36% in Q1 to 41% in Q2.
Labour costs are now the number one cost pressure for businesses.
With concern around utility costs dropping, 63% report these as an issue (74% in Q3 2022), the number of firms struggling with wage costs has risen to 68% (67% in Q1) and is now the lead cost pressure.
But there remain wide sectoral differences with 75% of manufacturers citing raw materials as the main factor driving price increases, while in hospitality, 85% of firms were most worried about utility costs. The retail sector was least worried about labour costs, with 56% citing it as an issue, against 64% flagging utilities and 67% raw materials.
Responding to the findings, Managing Director of Cumbria Chamber of Commerce, Suzanne Caldwell said:
“These results continue to give cause for concern. The Bank of England needs to think seriously before implementing any further increases in interest rates. These are putting additional strain on many businesses, while having little positive impact on inflation. It’s clear that established views of the way the economy works no longer hold true, with a need to consider different approaches.
Lack of workers, whether already skilled or to be trained, continues to be a serious issue for most businesses. This isn’t something that businesses can address alone. Again the solutions aren’t simple and it will take a combination of actions to address this.”
What businesses in Cumbria say:
“Lack of skilled workers in the UK particularly welders and engineers has had a telling impact on the business.”
“Staff recruitment is the most challenging, the business needs to invest in staff who would like a sponsored qualification for a career to enable the business to grow.”
“Brexit paperwork limits European expansion. We could be exporting much more were we still part of the EU.”