The East Midlands economy has suffered a series of knocks throughout the year, with cost pressures hitting businesses hard – but there are hopes for a more optimistic outlook in 2023.
This is the verdict of East Midlands Chamber after its latest research, which showed a decline in customer demand for products and services, investment intentions and recruitment prospects – yet a slight upturn in business confidence for the year ahead.
As part of its 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, the Chamber produces a State of the Economy Index to provide an “at a glance” picture showing the direction of travel for the local economy based on aggregated indicators.
It has trended downwards every quarter since the start of the year to reach its lowest level since the end of 2020 – a period of local Covid-19 restrictions and the beginning of a second national lockdown – but underlying data in the Q4 2022 survey offers room for optimism.
East Midlands Chamber director of policy and external affairs Chris Hobson said: “2022 has been a difficult year economically, with a series of events negatively impacting activity and sentiment – some out of our control and others self-inflicted.
“Domestic demand and international activity has softened slightly as the year has gone on, with cashflow deteriorating and investment intentions down.
“Recruitment difficulties have been the perennial issue, with this final set of data suggesting a drop-off in businesses seeking to grow their workforce.
“However, within that data lies a multitude of experiences, not all negative, and some signs for positivity as we enter 2023.
“Although business confidence – which affects tangible decisions like investment – has dropped significantly from where it was at the start of the year amid the war in Ukraine, political stability and policy flip-flops, there has been a small rise in optimism over profitability and turnover prospects during the final quarter of the year due to a more consistent approach to policy.
“While the gradual slowdown in demand has created capacity within the economy – opening the pressure valve on prices that has been one of the inflationary drivers – there are also signs that other drivers of inflation are starting to soften.”
East Midlands Chamber QES Q4 2022 data
Key findings from the Quarterly Economic Survey Q4 2022 for the East Midlands*, which was conducted between 7 November and 1 December 2022, included:
- UK sales stagnated between the third and fourth quarters of the year, with UK advanced orders down by 9%
- Overseas sales were up by 5% quarter on quarter but advanced orders decreased by 2%
- The proportion of businesses that added to their headcount in the past three months fell by 8% compared to the previous quarter, while there was a similar decline in firms expecting to recruit new staff in the next three months
- A net 57% of businesses expect they will be forced to raise prices as they grapple with rising costs for energy, interest rates, people, raw materials and fuel – although this is down from 62% and 58% in the previous two quarters
- A net 17% of firms reported a decrease in cashflow, marking a 3% rise in the proportion of companies affected
- A lack of room at the margins means investment intentions continue to trend downwards – falling by 6% quarter-on-quarter for plant and machinery, and 8% for training
- After nosediving in recent months, business confidence in the prospects of profitability improvements rose 10% compared to the previous quarter, although optimism over improved turnover was down by 1%.
Business Manifesto for Growth provides blueprint for economic growth
Chris added: “To turn these green shoots into real economic growth in 2023, it is essential that policymakers work with businesses to support them in their growth aspirations.
“Our Business Manifesto for Growth, launched at Westminster in November, provides a blueprint for this.
“While there is no one silver bullet, an immediate action Government could take is to better incentivise business investment in equipment and training, reducing inflationary pressures by both creating further capacity and softening the impact of high staff costs.
“Policy and geopolitical events aside, the biggest thing businesses will be hoping for in 2023 is a bit of calmness and consistency from those taking decisions on the direction of the UK economy – along with meaningful engagement with those businesses that will ultimately deliver the growth to ensure any recession is not just shallow, but short.”
The results will be discussed at the Chamber’s Annual State of the Economy Review on Friday (16 December), held in partnership with the University of Leicester, Geldards and emh group at Memorial House, in Coalville.
Professor Mohamed Shaban, associate dean for business and civic engagement at the University of Leicester School of Business, said there was support available for businesses affected by the economic climate.
He added: “We are proud of our long heritage providing research-informed knowledge exchange to businesses in the East Midlands and beyond through degrees, management development courses such as Help to Grow: Management, business support services, internships, placements, consultancy, knowledge transfer partnerships and contract research.
“Our academics thrive on solving business problems with world-changing research and innovative solutions providing real-world impact.”
To read the full Quarterly Economic Survey report for Q4 2022, click here.