The British Chambers of Commerce’s new Quarterly Economic Survey (QES) released today (Tuesday) shows that economic growth in the UK remains weak, with the Q3 results slightly worse than the previous quarter. The survey, comprising responses from 7,593 businesses across the UK, shows stagnation in the domestic market, and a fall in balances measuring exporting activity. Commenting on the results, John Longworth urged the government to focus on policies that will create the right business environment for firms to invest and grow.
The Q3 2012 results confirm that improvements in the UK’s economic performance remain inadequate. While we do not agree with the ONS’ gloomy estimation that the UK was in technical recession for three consecutive quarters, it is clear that the economy is stagnant. Though most key Q3 balances are weaker than in Q2, the survey results could still signal a return to positive GDP growth in Q3, as weaker balances may not indicate a contraction in overall economic activity.
The survey results show the following:
Business confidence and investment falls: The survey showed worsening confidence and investment levels from both manufacturing and services firms. For both measures levels are lower than long-term historical averages, and have not yet recovered to levels seen before the recession. Fewer firms are looking to invest in training and plant & machinery, and confidence in future turnover and profit has fallen to levels last seen at the end of 2011.
Recovery in exports has weakened: Previous surveys this year had shown strong results for exporters in manufacturing and services. While balances are still positive indicating growth, this quarter they fell to levels similar to Q4 2011, meaning export growth this year, has dropped back.
Domestic orders are weak and far below pre-recession levels: Balances measuring domestic activity have fallen on the previous quarter. In both manufacturing and services, balances for domestic orders for the last three months have fallen, with the balance figure only slightly above zero. More worryingly, the results point towards a contraction in the future, with the forward-looking home orders balances in negative territory. The domestic balances are higher than those seen in 2008 and 2009 during the recession. However, they remain lower than their long-term historical averages, and far below pre-recession levels.
Firms less confident in taking on staff: The figures measuring whether firms have or are likely to take on new staff have also fallen in the last quarter. Asked whether they had taken on staff in the last few months, the balance of manufacturing firms hiring fell to +11%, and for service firms declined one point to +9%. The balance of manufacturing firms looking to increase headcount in the next few months fell twelve points to +1%, and in services fell 3 points to +9%.
Companies reported cashflow problems: Balances measuring cashflow (the movement of cash in an out of a business) remain weak, and were in negative territory in both sectors. The manufacturing cashflow balance fell 6 points, to -4%, while services cashflow fell 3 points, to -4%.
Commenting on the results, John Longworth, Director General of the BCC, said:
“Economic growth is weak and businesses are less confident and less likely to invest than they were at the beginning of the year. The BCC’s survey results should be a clear signal to government that more needs to be done to stimulate growth alongside continued deficit reduction. Despite official estimates, we believe the economy is still growing, but it is slowing. We need immediate measures now to support confidence and investment, a radical long-term growth plan, and a continued commitment to deficit reduction.
“Domestic austerity and the eurozone crisis have dented confidence. In addition, business concerns around access to finance are also undermining the rebalancing of the economy towards exports. Businesses need to know that the government is taking decisive action to get the economy growing. They also need advice and support to be able to grow. The BCC has proposed a Growth Voucher scheme offering 20,000 small businesses £5,000 worth of advice to jump start investment and expansion plans. We need to encourage businesses to look to new markets, develop new products and invest, by boosting confidence and creating a positive cycle of growth.
“Ahead of his Autumn Statement, the Chancellor will need to consider other measures to move Britain towards a new model economy. That means implementing plans to create a British Business Bank, and far-reaching proposals to unlock infrastructure investment and special capital allowances that encourage companies to invest.David Kern, BCC Chief Economist, said:
"The Q3 2012 results confirm that UK economic performance remains weak and inadequate. While the official ONS assessment that the UK was in technical recession for three consecutive quarters is still too gloomy in our view, it is clear that the economy has been stagnant for too long, and urgent measures are needed to enable businesses to drive a sustainable recovery. Though most key Q3 balances are weaker than in Q2, our results could still signal a return to positive GDP growth in Q3. This is because our Q2 survey pointed to a stronger economy than the ONS suggested. Also, our members’ replies have probably given a smaller weight than the ONS to temporary distortions due to the impact of the Diamond Jubilee on the number of working days. Starting from the ONS estimate that GDP fell by 0.4% in Q2 2012, we expect positive quarterly growth of 0.5% in Q3 2012.
“The job of repairing Britain’s public finances will take longer to complete than initially planned. But, if the Chancellor demonstrates firm commitment to a credible fiscal plan, additional spending policies aimed at creating growth will help preserve market credibility. Overcoming the impediments dampening economic growth will be difficult and will take time, but we are confident we can get there. However, until excessive debt levels are reduced much further, businesses and consumers will have to accept a prolonged period of relatively low growth.”