Business accelerating into start of 2017

Businesses across the East Midlands are accelerating into 2017, according to the latest data collated by East Midlands Chamber.

But they are still seeking assurances when it comes to negotiations over Brexit and there are concerns about inflationary pressures in 2017 and how they will impact on growth.

Both domestic and overseas markets were robust in the final quarter (Q4) of 2016 with 43% of firms reporting improved domestic performance and 40% reporting improved overseas sales.

Looking forward to this year, 40% of respondents to the Chamber’s Quarterly Economic Survey (QES) for Q4 said they were seeing improved orders from domestic customers and 43% said they had seen no fall off.

When it comes to overseas sales, 37% said they had seen increased orders and 44% reported no decline.

The weaker pound following the vote to leave the EU is responsible for reducing the cost around the world of ‘Made in Britain’-branded goods but it is also making imports of raw materials more expensive, which is driving inflation. As a result, 50% of respondents said they expected to see price increases in coming months.

While 62% said they expected turnover to increase in the next 12 months, 50% said they anticipated profitability would increase.

Contrasting the Q3 dip in confidence, 23% of firms said they intend to increase investment in plant, machinery and equipment in Q4 and 25% intend to increase spending on training, up from 17% and 19% respectively.

Reflected in ONS employment figures from the end of 2016, businesses continued to expand in terms of employee numbers, with 29% increasing the size of their workforce and only 10% decreasing staff levels.

Looking forwards, 32% said they expected to increase their workforce in Q1 2017 and only 6% expected staff numbers to decrease.

But employers continue to report difficulties recruiting suitably skilled staff and still want assurances from Government over the future of their staff with EU-backgrounds.

The data collected in the quarterly surveys is used to create a State of the Economy Index (SEI) – an indicator of the direction-of-travel of the economy.

The SEI figure for Q4 was 293, 89 points higher than the Q3 figure (204) and the highest since Q2 2015.

Chris Hobson, the Chamber’s Director of Policy, said:-

“Despite the inevitable uncertainties that businesses have faced since the vote to the leave the EU, the economy in the East Midlands is robust.

“Domestic and overseas sales have grown strongly, particularly for our many manufacturers taking advantage of favourable exchange rates which make ‘Made in Britain’-branded goods less expensive overseas.

“However, the clear message from this survey is the likely impact, particularly in the manufacturing sector, of increasing levels of inflation and the inevitable difficulties this could cause from a planning and investment perspective.

“Slight increases were reported quarter-on-quarter in terms of recruitment intentions but accessing suitably-skilled staff continues to be a distinct difficulty for employers, with managerial/technical roles being the hardest to fill.

“It is apparent that clarity is still needed over what the main features of a successful UK economy outside of the EU are likely to be.

“Details and time-scales are lacking from Government regarding the types of trade deals the UK will negotiate and what Brexit will mean for those employing staff from EU countries, the uncertainty over which EU regulatory directives are likely to be kept and the dwindling amount of opportunities for those whose business models are largely-dependent on the sourcing of EU funding.

“In Q4, the Chamber, with support from many regional MPs, led a delegation of businesses to Westminster to highlight opportunities for a post-Brexit UK economy, along with current business concerns.

“We look forward to working with Government to make sure that the needs of business, which were compiled in a short report – Shaping a Great Future for the East Midlands: Leading a balanced and sustainable growth in a post-Brexit economy – are paramount during Brexit negotiations.”