Pressures on business reaching new heights, says BCC

The survey of more than 5,700 firms revealed a weakening in the proportion of firms reporting increased domestic sales, investment intentions, and longer-term turnover confidence.

More than 80 per cent of firms surveyed cited inflation as a growing concern for their business, also a historical high and three-quarters reported no increase to investment in plant/equipment.

The report revealed that measures for investment and longer-term business confidence have slipped back with indicators for turnover and profitability confidence, as well as investment, all worsened from their Q1 positions.

Firms expecting an increase in turnover over the next 12 months dropped from 63 per cent to 54 per cent – the lowest figure since Q4 2020 when much of the UK was under some form of lockdown.

Confidence in profitability also took a significant knock with 43 per cent predicting an increase, down from 50 per cent in Q1. More than a quarter (28 per cent) are now predicting a decrease in profits.

Unsurprisingly, this declining confidence in business performance has affected firms’ plans to increase investment, with three in four (75 per cent) saying they have no plans to do so (up from 73 per cent in Q1)

More than 65 per cent of firms now expect their prices to rise in the next three months, up from 62 per cent in Q1, a record high and a 23-percentage-point rise on a year ago. Only 1 per cent overall expect a decrease in their prices.

Expected price rises are being felt most acutely in the retail and wholesale sector, and construction and engineering sector, both at 78 per cent, with production and manufacturing only slightly behind at 77 per cent.

When measured as a net balance (the percentage of respondents reporting an increase minus those reporting a decrease), price expectations are now the highest since records began for this indicator in 1997 for both the manufacturing (+76 per cent) and services sectors (+56 per cent).

When firms were asked which factors were driving price rises, 67 per cent cited utility bills, 66 per cent labour costs, 56 per cent fuel and 53 per cent raw materials.

In the three sectors worse affected (retail & wholesale, construction & engineering, manufacturing & production) all three cited raw materials as the biggest factor.

When asked what external factors were more of a concern to their business than three months ago, 82 per cent of firms cited inflation. This is the highest on record and a rise from 77 per cent in Q1 (the previous record). 

The percentage citing interest rates as a concern also rose for the third quarter running; 1 in 3 (33 per cent) reported interest rates as a concern, up from 32 per cent in Q1.

Business activity remains buoyant but on downward trend with 41 per cent of respondents reporting increased domestic sales in Q2, down from 42 per cent in Q1, and the third consecutive quarterly fall. 

In the services sector, the balance of firms reporting increased domestic sales stood at +24 per cent, compared to +21 per cent in Q1. In the manufacturing sector, the balance of firms reporting increased domestic sales fell to +19 per cent in Q2, the lowest level since Q1 2021.

David Bharier, head of research at the British Chambers of Commerce (BCC), said this quarter’s survey results clearly pointed to a weakening economic outlook amid unprecedented cost pressures and falling business confidence.

“Domestic demand continues to show buoyancy, with almost half of respondents reporting increased domestic sales in the quarter,” he said.

“However, indicators for structural business conditions such as investment, and cash flow, are showing no sign of improvement for most firms.

“Inflation remains by far and away the top concern, with our survey measures going beyond anything we’ve seen before in the history of the data.

“Businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labour. The continuing supply chain crisis, exacerbated by conflict in Ukraine and lockdowns in China, has further compounded this.

“Some sectors are far more impacted than others. Manufacturers, retailers, and hospitality firms have been sounding the alarm on inflation for 18 months.

“Against this backdrop, it is no surprise that business confidence for the months ahead is waning as we enter a period of heightened economic uncertainty.”

Director-general of the British Chambers of Commerce, Shevaun Haviland, said nearly every single indicator has seen a deterioration since our last survey in March.

“Business confidence has taken a significant hit and fears over inflation and cost pressures are at new record highs,” she said.

“But it is not too late for the Government to take action to help businesses through these challenging times and put the economy on a more stable footing.

“A cut in VAT on energy bills to 5 per cent, and other steps to relieve the tax burden on firms to encourage investment are crucial.

“Better infrastructure, a strategy to address labour shortages and a unified long-term economic strategy to give businesses more certainty are also needed.

“The Government must swiftly demonstrate that it is on the side of business if confidence to invest is to be restored.

“Only then will we be able to return some momentum to the economy and find a pathway through the current difficulties.”