Introduction

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The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber in the second quarter (Q2) of 2021. This regular survey asks businesses a series of questions on key economic indicators. The survey ran from 16/05/22 and 10/06/22.

Summary

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In total, there were 322 responses. Of these, 40.0% can be broadly classified as Manufacturers. 60.0% can be broadly classified as Service Sector businesses. 35.0% of businesses employed fewer than 10 people. 36.0% employed 10-49 people. 24.0% employed 50-249 people. 5.0% employed over 250 people. 52.0% of businesses were active in international markets over the course of past quarter.

Wider Economic Context

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The unemployment rate for East Midlands reported by the Office for National Statistics (ONS) fell by 0.8% compared to the previous three-month (October’21 to December’21) period to 2.6% in the January’22 to March’22 period. Youth (16-17 years) unemployment remains high at 22% with a slight increase from 20.4% compared to previous quarter. Nationally, the number of job vacancies for the period February’22 to April’22 was 1,295,000 and increased by 33,000 from previous quarter. Out of 18 industry sectors, 11 displayed record high ratio of vacancies to every 100 employed jobs.

According to Bank of England’s latest report, inflation is 7% due to high energy and goods prices and is expected to rise to 10% this year with a slowdown in economy. Looking at the exchange rates, the GBP stands at €1.20 in May – €0.01 higher than in March’22. The latest data from Department for International Trade (Q4 2021) show exports valuing £5.73 billion from the East Midlands region.

Region at a Glance

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*Net Value = Increase - Decrease

State of Economy Index

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Compared to previous quarter, this quarter saw slight fall. The state of economy index value for the current quarter is 236.

Your personalised results

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Chamber Commentary

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Confidence dives as uncertainty persists

The latest results from the Chamber's economic survey suggest that the uncertainties that clouded decision making at the start of the year are now being viewed as being longer lasting than anticipated. Issues with supply-chains, readjusting since the pandemic impact and surging demand as we emerge into this post-pandemic period,, changes in trading conditions as a result of the UK leaving the EU and, more recently, the impact on prices following the Russian invasion of Ukraine, have all combined to hit business confidence and activity levels.

Only a net 8% of businesses expect profitability to increase over the coming year, down from a net 31% at the start of the year. With net 42% expecting turnover to improve, down from net 62% last quarter. Looking at the specifics that are driving this, overseas sales and orders have weakened considerably since the start of the year, while the UK market has remained flat. The labour force has grown more slowly – partly as a result of continued difficulties in finding the right people – and while cashflow has improved overall, there are still 29% of businesses that have seen a deterioration. The big question mark remains over future changes to prices, with 63% expecting to increases their prices over the coming quarter. These are being driven in almost equal measure by four big pressures: Utility costs; labour costs; raw material costs; and for the first time, fuel costs.

This dent to confidence has knock on effects on investment, with intentions to invest in training (down 3% quarter-on-quarter) and equipment (down 6% quarter-on-quarter) both being scaled back, and at a time where 40% of businesses report operating at full capacity – a record for the survey in recent times.

The underlying concern here is, for an economy to grow, businesses need to invest. A struggling economy isn't being driven by a lack of demand, but rather a hindered ability to respond to that demand. This in turn puts further pressure on prices, risking a situation that continues to deteriorate as the months progress.

So what can be done?

Businesses need an injection of confidence to enhance their investment plans and respond to the challenges that they're facing. Given that many of these issues are external, this is easier said than done, however, there are levers the Government can pull to support business. On fuel, Government should act to further cut duty and reduce VAT applied to fuel purchases, while the HMRC mileage rate should be increased form 45p per mile to 60p. Small businesses should be offered greater grant support on fuel bills, similar to that received by consumers, and those struggling with repayments linked to coronavirus-associated support schemes, should be given more leeway for repayments to be made. Finally, incentives should be given to businesses looking to invest in their people, similar to schemes that already exist for capital investment, which themselves should be extended.

These are not usual times, but the current state of affairs is also not permanent. It is right that Government should act to introduce special measures at a time when the economy needs it, with the knowledge that once there are calmer waters ahead businesses will continue on their growth trajectories and drive a competitive UK economy.