BCC Economic Survey: Growth continues, but pace slackens in Q1 2015
• BCC’s Quarterly Economic Survey is the first major economic indicator of the year, and is closely watched by the Bank of England and the Treasury.
• Manufacturing and services firms reported somewhat weaker Q1 results in most areas (including exports, domestic markets and investment), but this follows very strong findings in Q4 2014.
• John Longworth says that “while it is a fact that growth in the economy continues these figures are a reminder that the path to great, sustainable, long-term growth is bumpy and challenging. As the general election approaches support for growth must be at the heart of the debate, with a much needed focus on boosting exports and business investment”.
The British Chambers of Commerce (BCC) Quarterly Economic Survey (QES) – one of Britain’s largest and most authoritative private business surveys based on more than 7,500 responses from firms, employing around 850,000 people – shows that manufacturing and services firms reported slightly weaker growth for the start of 2015.
While the Q1 2015 results show weaker balances in most areas compared with Q4 2014, quarter-on-quarter trends support our view that the economy is growing at a steady rate. However, balances are lower in the key areas of export sales and investment, which are crucial to the rebalancing of our economy.
Key findings in the Q1 2015 Quarterly Economic Survey:
• After very strong increases recorded in Q4 2014, almost all the national balances for both manufacturing and services weakened in Q1.
• In both sectors, a number of key Q1 balances are now lower than their pre-recession levels in 2007.
• In manufacturing, domestic balances were down; domestic sales (+30%, down from +36% in Q4 2014,) and domestic orders (+27%, down from +38% in Q4 2014).
• In services, the domestic balances were down; domestic sales (+34%, down from +38% in Q4 2014) and domestic orders (+28%, down from +33%).
• Most export balances weakened in Q1 2015; manufacturing export sales fell by 7 points to +19%, while service export sales fell only slightly by 1 point to +21%.
• Both manufacturing and services firms have lowered their investment intentions for training, as well as plant and machinery.
• The only exceptions to the general pattern of quarterly falls in the Q1 balances are a small rise in the manufacturing balance for profitability confidence (+47%, up from +45% in Q4 2014) and an unchanged balance for manufacturing export orders (remaining at +23%).
John Longworth, Director General of the BCC said:
“It is not a huge surprise to see slightly weaker numbers at the start of the year, after a very strong fourth quarter for many firms. Crucially, our survey demonstrates that businesses remain optimistic, though they expect to grow at a slightly slower rate over the coming months.
“Our conclusions are by no means a cause for alarm, but they are a salutary reminder that the UK still faces obstacles on the path to sustainable, long-term growth. Unless support for exports and business investment is placed at the heart of any future government, consumption and government spending will continue to drive an economic recovery that is unbalanced and unsustainable.
“With these results in hand, our message to the politicians is simple: the national interest must come before short-term political point scoring. Given that all parties agree that the UK needs to strengthen its trade performance, and that we need to encourage our businesses to invest more, these should be issues that unite – rather than divide – the parties over the weeks ahead.”
David Kern, Chief Economist of the BCC said:
“After unusually strong results in Q4 2014, almost all the national balances weakened in Q1 2015, for both manufacturing and services. But taking the QES results for the last two quarters together probably gives a more representative picture of the business outlook.
“It is disappointing that most Q1 balances recorded quarterly falls, and some are lower than the 2007 pre-recession levels, however the balances still point to solid economic growth continuing in 2015. While the national balances of our survey reflect accurately the overall momentum in economic activity, they do not necessarily replicate quarterly GDP movements as published by the ONS. It would not be surprising if the ONS reports an upturn in GDP growth, or at least an unchanged position, in Q1 2015.
“But the UK recovery remains unbalanced – growth is still too reliant on consumer spending and the current account deficit remains unsustainable. While a healthy consumer sector is vital for the economy’s wellbeing, much greater efforts are needed to increase the contributions of exports and capital investment to Britain’s growth. The Q1 2015 results show falling inflationary pressures, particularly in manufacturing, and easing pressures on capacity; this reinforces our view that the MPC must maintain interest rates at their current low level at least until early in 2016.”
Further findings from the survey:
• Intentions to raise prices have fallen sharply in manufacturing (+11%, down from +21%, the lowest level since Q2 2012) and are down slightly in services (+23%, down from +24%). This reinforces our view that inflation will remain low.
• The share of firms operating at full capacity fell by 5 points to +36% for manufacturing firms, and by 3 points to +43% for services firms.
• Employment expectations dropped slightly for manufacturing (fell 1 point to +32%) and services (fell 1 point to +26%), however balances remain well above their average 2007 pre-recession levels.