The calm between the storms – Chamber’s Quarterly Economic Survey for Q1

The Chamber’s Director of Policy and External Affairs, Chris Hobson (pictured), analyses the QES Q1 results against an unprecedented economic backdrop.

Given where the economy currently finds itself it perhaps seems peculiar to report on economic data gathered throughout February. At the time of the survey, the full extent of potential coronavirus implications for business was still becoming understood and, added to this, many businesses were starting the year with an increased sense of certainty following a decisive General Election victory for the Conservatives in December 2019 and the UK formally leaving the European Union at the end of January. It’s obvious that the conditions

businesses were operating in and the sentiment they felt towards prospects have now changed and, depending on the sector, have changed significantly. However, examination of the QES

results can give us a flavour of where businesses are in terms of preparedness, and some of the early emerging issues as the impact of coronavirus was becoming understood. So, what are the headlines?

‘Manufacturing is such a significant part of the East Midlands economy and any prolonged global slowdown will leave the sector significantly exposed’

The biggest concern for many

businesses at the moment is cashflow, and that was picked up clearly in the survey. 2019 was a year of ups and downs for cashflow amongst organisations, linked closely to stockpiling ahead of a series of proposed exit dates for leaving the EU which never came to pass. These issues receded at the end of 2019, however, returned in the first quarter of this year, with

36 business network April 2020

27% of respondents saying their cashflow situation had deteriorated – the split between manufacturers and service-sector businesses remaining even. If run again today this figure

would likely be significantly higher, the concern highlighted by QES being that businesses aren’t necessarily starting from a strong base in terms of cash. All of this underlines the importance of the Chancellor’s measures to support cashflow issues for organisations impacted by coronavirus and emphasises the need to see this available and flowing through to organisations as quickly as possible. We will know in short- time how effective these are being and there may well be a strong case for some measures to be extended or go further. With regards to business activity,

the survey found that the domestic market was particularly strong with four-in-ten reporting an increase in UK sales and three-in-ten an increase in overseas activity, with our manufacturers unsurprisingly being much more international in their than our service sector businesses. Manufacturing is such a significant part of the East Midlands economy and any prolonged global slowdown will leave the sector significantly exposed, and highlight the importance of continuing to diversify markets, including in the UK. A number of organisations are already starting to look closer to home for their components and, while supply-chains will always be international, this perhaps presents some opportunity. In terms of investment

intentions, 26% were revising these upwards for capital projects and 27% upwards for training – both up year-on-year. As businesses examine the wider impact of any slowdown on their business models it is essential for the UK economy that these figures remain robust, but in doing so this will also support businesses to continue to

transition towards new ways of working where they can – for example investment in IT to increase remote working options and training to strengthen areas of management and broaden staff abilities to respond to shifting demands. One-third of businesses were

expecting their prices to increase over the coming quarter, with only two per cent predicting a softening here. It remains to be seen what actual movement takes place following the significant softening in activity, followed up by a range of recent interventions from the Bank of England, including a reduction in the base rate to 0.1% and the reintroduction of quantitative easing measures.

Perhaps the most interesting

indicators among all of the findings are the ones that relate to sentiment, how businesses are feeling about their prospects for the year ahead. Over half of businesses at the time of the survey were expecting turnover to improve over the coming year, with just under half expecting profitability to improve. Given the uncertainties of the previous year, these figures suggested a relatively decent level of confidence in the economy. The next few weeks and months,

the length and severity of the disruption they hold, and the effectiveness of recent Government interventions, will all be key in seeing how businesses feel come Q2’s survey in June.

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