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East Midlands Chamber News

Confidence returns for businesses as stage two of lockdown reopening roadmap begins, East Midlands Chamber QES data finds

Confidence among the region’s businesses is at its highest since before the last general election as the partial reopening of the economy begins, according to new data compiled by East Midlands Chamber.

The latest Quarterly Economic Survey (QES) for Q1 2021 showed a net 53% of businesses expect their turnover to improve over the coming year, with a third (net 35%) anticipating a rise in profits.

It was the most comprehensive QES yet – with responses from a record 540 businesses in Derbyshire, Leicestershire and Nottinghamshire between 15 February and 8 March – and is published today (12 April) as stage two of the Government’s roadmap out of lockdown commences with the reopening of hospitality, non-essential retail and personal care businesses.

Chris Hobson, director of policy and external affairs at the Chamber, said: “The survey data suggests businesses are ready to grow and support the wider economic recovery the country now needs.

“Sentiment among businesses is as strong as it has been since summer 2019, supported by the successful vaccine rollout programme, a roadmap for reopening the economy and a broadly positive response to the spring budget.

“As stage two of the roadmap begins today, this research highlights that businesses are ready to take advantage of the opportunities this will bring as we edge towards a fully open and functioning economy, anchored by an anticipated pent-up consumer demand.”

East Midlands businesses ready to invest again

Investment intentions are also on the up, with a net 7% and 15%, respectively, planning increased investment in people and equipment as they look to repoint their business to succeed in a post-pandemic world.

Recruitment expectations are also strong – 30% expect their workforce to grow, with the majority of these posts full time and permanent, with only a small percentage (7%) expecting reductions in workforce over the next quarter.

Despite these positive signs, cashflow – which worsened for the majority of firms in each quarter of 2020 – remains a problem for a significant number of businesses, with a net 14% reporting this to be down once again in Q1.

Brexit impact felt by East Midlands overseas traders

And while UK activity is recovering well, overseas activity continues to trail behind. A third (33%) saw overseas sales worsen over the quarter – only 24% reported an improvement – with four in 10 witnessing a drop in EU activity.

“Although this was partly offset by stronger performance in other markets – particularly in North America and Asia – the EU remains the East Midlands’ most significant trading partner,” said Chris.

“So the extent to which businesses are able to continue moving up the learning curve for the new way of trading – or in fact whether some of the problems are structural and irreversible – will be of great importance to future prospects.”

How the economy handles price pressures will also be significant, he believes.

Four in 10 businesses expect their prices to increase over the coming months, rising to six in 10 when looking solely at manufacturers – largely driven by a growth in raw material prices, which were reported by 85% of manufacturers.

Chris added: “Others are still seeing increased costs associated with the continued friction experienced following the end of the UK’s transition period with the EU.

“To what extent these pressures can be incorporated into refined business models, versus how much is passed on to customers, will be of great interest to those involved in setting monetary policy.”

East Midlands Chamber survey offers cause for optimism

The Chamber models the survey data across a range of key performance indicators, including sales and orders, recruitment, cashflow, investment intentions and confidence, to produce a quarterly State of the Economy Index, which enables it to compare local business performance quarter-by-quarter.

In Q2 2020, the score fell to -411, its lowest level on record and the first time it had fallen into negative territory. After returning to positive territory in Q3 2020, it has now reached a score of +150, its highest level since before the pandemic.

Although individual experiences will be mixed, particularly in the worst-affected sectors, Chris said the survey results provided “much cause for optimism”.

He added: “Over the past 12 months, many businesses have looked at their operating models, markets, processes and products, and have sought to position themselves to succeed as restrictions are lifted.

“New ways of working initially forced upon businesses by the pandemic have brought forward some opportunities for efficiencies and greater opportunities to collaborate.

“The ultimate success of this activity will be put the test over the coming months as the economy reopens. This set of results suggests that businesses are up for the challenge.”

To read the full QES Q1 2021 report, click here.