QES: Growth will be subdued
- BCC’s Quarterly Economic Survey for Q1 2013 shows progress, with almost all major balances improving compared with Q4 2012.
- British businesses are resilient, but many balances are still below pre-recession levels and growth remains too low.
- John Longworth: “These results provide a glimpse of the as-yet-distant sunlit uplands of recovery. Businesses up and down the country are working hard to drive the economy, create jobs and export, but they cannot accelerate this process alone.”
The British Chambers of Commerce’s Quarterly Economic Survey (QES) released today (Tuesday) shows that the economy has made progress, but there are still some mountains to climb before it is fully back on track. The new survey, made up of responses from more than 7,000 businesses, shows that most key balances in both the manufacturing and service sectors strengthened in the first quarter of 2013. Export balances in services are particularly strong, with deliveries and orders near the all time high in 1994. Business confidence and investment are also up, and cashflow, although still relatively weak, is now positive for both manufacturing and service sector businesses.
Despite these welcome improvements, most indicators are still below their pre-recession levels seen in 2007. It is disappointing that employment balances weakened overall in the first quarter.
The findings suggest the economic outlook will improve gradually, and that growth will be positive but subdued this year. The results also demonstrate resilience among UK businesses, many of whom are confident and looking to invest and increase exports this year.
Commenting on the results, John Longworth, BCC’s Director General, is urging the government to support business confidence and foster what is likely to be modest but gradual economic growth this year.
Key findings in the Q1 2013 BCC survey:
For both manufacturing and services, the key domestic balances are stronger in Q1 than in Q4, but overall the improvements are fairly modest and are still below pre-recession levels seen in 2007.
- Export balances are strong, with service export orders and deliveries almost at the all time highs seen in 1994 (orders up 8 points to +26%, deliveries up 9 points to +33%).
- It is disappointing that most employment balances weakened across both sectors (the manufacturing employment balance fell 4 points to +11%, and in services the employment balance fell 3 points to +6%).
- Business confidence has increased further, with all balances much stronger than their average levels in the midst of the recession in 2008 – 2009.(Manufacturing turnover confidence rose 3 points to +44%, and by 2 points in services to +40%. Profitability confidence increased by 3 points in manufacturing to +33%, the highest it’s been since Q4 2007, but was unchanged for services at +22%).
- Investment intentions rose slightly overall in the first quarter. The balance of manufacturing firms looking to increase investment in plant and machinery rose three points to reach +14% – the best level since Q1 2012. In services, this balance increased by 4 points to reach +9% – the best level since Q4 2007.
- Intentions to raise prices are weaker in Q1, particularly for manufacturers where balances dropped 19 points to +17%, which reflects reduced pressures from raw material costs. The balance of service firms expecting to raise prices fell 2 points to +19%.
- The Q1 cashflow balances, though still relatively weak, are now in positive territory for both sectors. Cashflow for manufacturing firms edged down 1 point to +2%, while improving in the service sector by 7 points to +6%.
- Overall, the Q1 results support our view that the economy will record positive but subdued growth in 2013.
Commenting on the results, John Longworth, Director General of the BCC, said:
“Although the progress seen in the first quarter of this year is modest, it is progress nonetheless. Business confidence has increased further, and it is really encouraging to see export orders and deliveries near to their record high levels in services. This showcases the determination and ambition of our businesses here in the UK, despite continued pressures both at home and abroad. But the fact remains that the economy is still not strong enough. The fall in most employment balances is disappointing, and reminds us that a strong labour market cannot be taken for granted.
“The government should be quick to implement the supply-side measures announced in the Budget to get growth moving, and consider new ways to support business confidence, which has continued to rise. It is clear from our survey that any growth this year will be slow and steady, and it is important that this does not veer off course. Recent welcome steps to improve business access to finance, including the commitment to create a business bank, must be followed through without bureaucratic delays. But the scale and scope of the new bank must go well beyond the government’s current plans. Although business supports the government’s plans to shift current spending towards capital investment over the next Parliament, it could go further still to boost growth in the short-term, such as through road maintenance and house building.
“We should not be satisfied with a long and tortuous road to recovery. These results provide a glimpse of the as-yet-distant sunlit uplands of recovery. Businesses up and down the country are working hard to drive the economy, create jobs and export, but they cannot accelerate this process alone. We must be proactive, bold and forthright to bolster business and foster every shred of growth as this will propel our economy forward during the months ahead.”
David Kern, BCC Chief Economist, said:
“The improvement seen in most key balances in Q1 supports our view that UK output continued to grow in the early months of 2013. The survey reinforces our assessment that recent GDP figures published by the ONS have exaggerated the weakness of the UK economy and the volatility in output.
“If an announcement of negative growth in Q1 is misleadingly described as a triple-dip recession, confidence will again be damaged unnecessarily. While the results do confirm that the UK’s economic performance is inadequate, they also show areas of strength.
“The surge in the service sector’s export balances suggests that pessimism over UK exports is unjustified. However the UK is increasingly becoming a largely service sector economy, and developing the export potential of the service sector is critical to our future long-term prosperity. We need a two-pronged strategy that combines a commitment to cutting the deficit, with a relentless drive to boost growth and the economy’s productive potential.”