POLICY MAKERS URGED TO SUPPORT BUSINESS GROWTH
Edinburgh Chamber of Commerce today called on the Scottish and UK Governments to create a supportive policy environment to help businesses survive, grow and thrive as they face into the coming “deeply challenging” months.
The latest British Chambers of Commerce (BCC) Quarterly Economic Survey – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – has shown the recovery stalled in the fourth quarter, with firms facing unprecedented inflationary pressures.
The survey of almost 5,500 firms also revealed a continued stagnation in the proportion of firms reporting improved cashflow and increased investment. Inflation is the top issue for firms, while a rise in the interest rate was also a cause for concern for many.
And this is all further complicated by staffing and supply chain issues greatly exacerbated by Brexit. A survey by the Federation of Small Businesses has thrown up similar issues amongst the country’s smaller companies, with export sales flat and late payment adding to their woes and business optimism at a low ebb.
Liz McAreavey, Chief Executive at Edinburgh Chamber, said that large numbers of businesses expected to see their prices increase in response to the inflationary pressures they face, especially the costs of raw materials, higher pay settlements and finance costs.
“While the recovery had looked promising, there is no doubt that a perfect storm of Omicron, Brexit and inflation threatens to blow growth and recovery off course.
“We need our policy-makers to help. Businesses want to grow and contribute to a stronger, fairer future but they need help to get there. In turn, successful businesses boost the tax revenue our government desperately needs to support our services and way of life. We need our leaders in the UK and Scotland to do all they can on two fronts:
“They need to match any further restrictions on businesses with appropriate levels of support. There can be no excuse for not doing so. And as a top priority they also need to look at what they can do to create a more supportive business environment right across the board – from re-examining the business tax burden right through to helping businesses get the people they need.
“In no sectors is this more desperate than in our hardest-hit hospitality and tourism sectors, on which tens of thousands of jobs in Edinburgh rely.”
Highlights from the BCC survey include:
· 58% of firms expect their prices to increase in the next three months, the highest on record. 66% of businesses cited inflation as a concern, also a record high
· 1 in 4 (27%) firms were worried about rising interest rates, as concerns over rate hikes among manufacturers reach record high
· Just under half of firms (45%) reported increased domestic sales in Q4, compared to 47% in Q3
Ms McAreavey added: “Weakness in cash flow is troubling because it leaves businesses more exposed to the economic impact of Omicron, rising inflation and potential further restrictions.
“The record rise in price pressures suggests that a substantial inflationary surge is likely in the coming months. Rising raw material costs, higher energy prices and the reversal of the VAT reduction for hospitality are likely to push inflation above 6% by April.
“The notable uptick in concerns over higher interest rates underscores the need for the Bank of England to proceed with caution on further rate rises to avoid undermining confidence and an already fragile recovery.
“Rising inflation is likely to weaken the UK’s growth prospects this year by eroding consumers’ spending power and squeezing firms’ profit margins and ability to invest.
“All of this paints a deeply challenging picture for the economy for the next few months.”
BCC Survey Findings:
On business activity
– 45% of respondents overall reported increased domestic sales in Q4, down from 47% in Q3. 16% reported a decrease, unchanged from Q3.
– In the services sector, the balance of firms reporting increased domestic sales dropped to +26% in Q4, from +31% in Q3.
– In the manufacturing sector, the balance of firms reporting increased domestic sales was +22% in Q4, down from +28 in Q3.
– Prior to the surge in Omicron infections, hotels and catering had been most likely to report increased domestic sales (55%). This represented the beginning of a potential recovery as the sector was also the most likely to report decreased sales throughout the rest of the pandemic. 94% reported decreased sales and cash flow at the start of the pandemic in Q2 2020. Worryingly, a similar decline is now possible in the face of the Omicron variant and the implementations of increased restrictions.
On Unprecedented Inflationary Pressures
– 58% of firms expect their prices to increase in the next three months, the highest on record. Only 1% expected a decrease.
– The percentage expecting an increase rises dramatically to 77% for production and manufacturing firms, 74% for retailers and wholesalers, 72% for construction firms, and 69% for transport and distribution firms. These are the highest on record.
– When asked whether firms were facing pressures to raise prices from the following factors, 94% of manufacturers cited raw materials, 49% cited other overheads, 30% cited pay settlements, and 13% cited finance costs.
– When asked what was more of a concern to their business than three months ago, 66% of firms overall cited inflation (compared to 52% in Q3 and 25% in Q4 2020), the highest on record. For production and manufacturing firms, this rises to 75%.
On concerns over higher interest rates rise
– The percentage citing interest rates as a concern rose in the quarter. 1 in 4 firms (27%) reported interest rates as a concern, up from 19% in Q3.
– The percentage mentioning interest rates as worry among manufacturers stood at 28% in Q4, the highest seen since the metric was first collected in Q4 2009 and up from 21% in Q3.
– The percentage citing interest rates a concern among service sector firms stood at 29% in Q4, the highest seen since Q3 2014 and up from 22% in Q3.
On recovery to Cash Flow
– For firms overall, 31% reported an increase to cash flow, while 46% reported no change and 23% reported a decrease.
– Given these figures were reported before the full impact of Omicron and the introduction of further restrictions, this metric is a cause for concern, as some firms are still struggling to recover from large scale losses incurred since the start of the pandemic.
On firms still not investing
– Investment in plant, machinery, or equipment also continued to flatline in Q4, with 29% overall reporting an increase, while 60% reported no change, and 11% a decline. This was largely unchanged from Q3 and Q2.