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East Midlands Chamber News

Growth Slows, But Confidence Remains, Says Chamber

Chamber Chief Executive George CowcherThe pace of economic growth in Derbyshire, Nottinghamshire and Leicestershire started to slow in the final three months of 2014, according to new figures from the Chamber.

Its latest Quarterly Economic Survey, for Q4 2014, found that although growth slowed in the quarter, many firms still remained confident about their prospects for the year ahead.

The Chamber tracks business performance across a range of key economic indicators – including sales and orders, staffing levels, price expectations, investment intentions and business confidence – to produce a quarterly State of the Economy Index.

The index hit a seven-year high of 411 points in Q2 of 2014 before falling to 379 in Q3. In Q4, it fell back slightly again, to 377, suggesting the growth experienced over the past 18 months had levelled out.

State of the Economy Index

In terms of activity, 51% of firms reported an increase in UK sales in Q4, which mirrored the previous quarter, although there was a slight rise in the number of firms reporting a decrease in domestic sales. Export sales held steady.

Confidence in both future turnover and profitability remained at similar levels to Q3, with 64% of firms expecting their turnover to improve and 71% expecting their profits to improve over the coming 12 months.

Chamber Chief Executive George Cowcher said: “2014 was a good year for businesses in the East Midlands. There was consistent growth in the regional economy, with success in sales and activity across all business sectors.

“Businesses also started to make the investments required to take them to the next stage of growth, although this didn't happen at the kind of pace many policymakers would have liked.

“However, the findings have confirmed what many businesses have been telling the Chamber recently, that the pace of growth slowed down towards the end of the year.

“While this slowdown in activity has been sharper than expected, mirroring national GDP figures for the same period, it’s too early to definitively say that this is the start of a longer-term trend.

“There are, however, a number of global headwinds starting to appear –the slowdown in China and the current situation in Greece, with its implications for the wider eurozone area, for example – which may not have an impact here in the UK today, but could create uncertainty in the longer term. Until exports pick up, UK growth will continue to look unbalanced.

"While these may all be factors which are outside of the UK’s control, it’s imperative that wherever policy can support business, it does so, specifically around development of UK Export Finance and ensuring regional connectivity to overseas markets is a strength, not a hindrance.

"2015 will be an important year for business in the East Midlands. Against a busy backdrop comprising issues such as a General Election, continued discussions over devolution, interest rate rises and many other factors, business in the region will continue to strive for growth and do what it needs to do to secure further growth and success."

Skills Shortages Bite for Local Businesses

The survey also found that the number of firms struggling to recruit suitably skilled staff has doubled in a year. Although 57% of respondents attempted to recruit in the final three months of 2014, 62% reported recruitment difficulties. This was almost double the amount in Q4 2013 and up from 50% in Q3 2014.

The greatest problems in recruiting were reported by firms looking for skilled manual/technical roles at 54% of all respondents, rising to 64% of those from the manufacturing or engineering sectors.

Reflecting continued pressures on skills within businesses, 35% of respondents revised their training budgets upwards in this area, up from 29% in Q3.

Linked to this, Q4 saw a slight decrease in the number of firms which were planning to award a general pay rise over the next 12 months, down from 72% in Q3 to 67% in Q4. This compared to the 63% which had awarded a pay rise during 2014.

Perhaps reflecting the greater difficulties in recruiting suitable staff, manufacturers and engineers felt they were more likely to award a general pay rise, at 77%. Of those intending to award a general pay rise, 92% said it would be at or above inflation – an increase from 86% in Q3.

A quarter of all respondents said they faced pressure to raise prices due to pay settlements, compared to 40% due to raw material costs, 24% finance costs and 40% other overheads.

However, only 35% of respondents felt that they would need to raise their prices in Q1 2015.

Chamber Chief Executive George Cowcher said: "Although there was consistent growth in the regional economy throughout 2014, this began to level out in the final few months of the year.

"However, while growth undoubtedly happened, this survey has also detected some darker clouds on the horizon, which if left unchecked could act to negate the growth already secured by local businesses.

"Looking at the final results for the year it appears that those clouds are now much closer than before – specifically, the challenges businesses looking to grow are facing in recruiting suitable staff in the East Midlands.

"The sharp increase in this figure poses a genuine threat to continued growth and can be linked to the slightly lower levels of confidence and an increase in training budgets reported elsewhere in this survey.

"This is an area which requires urgent focus from policymakers. In particular, getting the link right between education and the world of work has never been more important if this country is serious about creating a new economy equipped for success in the long term.

“It’s an issue that the Chamber has long campaigned on and, unfortunately, the structural problems in this area, over the past few years in particular, are impacting upon businesses' ability today to recruit the right staff to help them grow.

“The skills shortage is very much a current issue, so getting right policies in place to support recruitment is imperative, with priority being given to specific policies regarding relief on business investment and supporting those furthest away from the job market into employment."