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13 Oct 2022

Declining demand, falling cashflow and rising costs are hitting business confidence, finds East Midlands Chamber study

Confidence among East Midlands firms continues to decline as cost pressures – coupled with falling customer demand and access to cash – take a toll, new research reveals.

East Midlands Chamber’s Quarterly Economic Survey (QES), which is delivered in partnership with the University of Leicester School of Business and gauges the health of the region’s economy, found the proportion of businesses expecting to record improvements in profitability and turnover over the coming year has fallen by 21% and 17% respectively between the second and third quarters of 2022.

A lack of optimism on what lies ahead is being driven by a decline in UK and overseas sales, as well as advanced orders, alongside a 18% negative swing in cashflow quarter-on-quarter.

The tightening grip of the “cost-of-doing-business crisis” – led by rising costs for energy, people, raw materials and fuel – means almost six in 10 firms now expect they will be forced raise their own prices, while intentions to invest and recruit are now sliding.

East Midlands Chamber director of policy and external affairs Chris Hobson said: “These results paint a difficult picture for businesses. Many of the sentiment indicators of how the economy is performing – those relating to investment intentions and confidence levels – have been trending downwards for a few quarters now.

“However, for the first time, demand indicators – how busy businesses are in selling their goods and services – have also dropped, both internationally and here in the UK. This is a concern as it suggests the impacts of inflation, especially the increasing volatility in energy markets and subsequent interest rate rises, is starting to dull activity.

“Cashflow is now worsening for more businesses than it’s improving for and, when considered with the well-publicised price pressures that are now at a critical point for many firms, this all points to the need for immediate action to support businesses.

“We also need a longer-term strategy in order to instil confidence and give them the encouragement they need to start taking more strategic decisions around investment.”

East Midlands Chamber QES Q3 2022 data

Key findings from the Quarterly Economic Survey Q3 2022 for the East Midlands* included:

  • Sales dropped between the second and third quarters of the year – falling by 22% domestically and 12% overseas – while advanced orders also fell by 19% in the UK and 1% internationally
  • While there was a 4% rise in businesses increasing their workforce between the quarters, future outlook is less optimistic with a 9% slide in the proportion of firms expecting to add to their headcount
  • This comes as two-thirds (66%) of businesses attempted to recruit in Q3 but, of this cohort, 82% encountered problems with filling vacancies – across a relatively even split of professional, skilled manual, unskilled and clerical workers
  • A net 58% of businesses expect they will be forced to raise prices (down from a net 62% in Q2) as they grapple with rising costs for utilities, people, raw materials and fuel
  • Cashflow, having been up for a net 4% of firms in Q2, is now down for a net 14% of businesses, marking an 18% negative swing, while opportunities for growth are in short supply with four in 10 (39%) at full operating capacity
  • A lack of room at the margins means investment intentions continue to trend downwards – falling by 6% quarter-on-quarter for both plant and machinery, and training
  • Business confidence has nosedived, with the proportion of businesses expecting improvements in profitability dropping by 21% and those anticipating a higher turnover falling by 17% between the second and third quarters

Businesses debate future prospects

The Quarterly Economic Survey Q3 2022 results were unveiled at an Economic Performance and Prospects Review event held at the University of Leicester School of Business today (13 October).

It marked the launch of a new strategic partnership between the two institutions focused on economic thought leadership via research, skills data visualisation, business support and an annual State of the Economy Conference.

A panel of business leaders – comprising the University of Leicester’s associate dean for business and civic engagement Professor Mohamed Shaban, Galliford Try head of business development Neus Garriock, Freeths’ Leicester managing partner Mukesh Patel, Assist Consultancy director Sonia Baigent and Highcross Leicester senior general manager Jo Tallack – discussed the survey findings, how the cost-of-doing-business crisis is affecting their sectors and how policy can support firms.

Professor Dan Ladley, dean of the University of Leicester School of Business, said: “I’m very pleased to be able to launch the partnership between the East Midlands Chamber and University of Leicester School of Business.

“The data show these are potentially difficult times for businesses with challenging headwinds to navigate. It’s important in these times that we continue to do everything we can to support the success of our regional businesses.”

To read the full Quarterly Economic Survey report for Q3 2022, click here.