Introduction

---

The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber in the fourth quarter (Q4) of 2022. This regular survey asks businesses a series of questions on key economic indicators. The survey ran from 07/11/22 and 01/12/22.

Summary

---

In total, there were 356 responses. Of these, 36.0% can be broadly classified as Manufacturers. 64.0% can be broadly classified as Service Sector businesses. 42.0% of businesses employed fewer than 10 people. 33.0% employed 10-49 people. 19.0% employed 50-249 people. 6.0% employed over 250 people. 47.0% of businesses were active in international markets over the course of past quarter.

Wider Economic Context

---

The unemployment rate for East Midlands reported by the Office for National Statistics (ONS) increased by 1.2% compared to the previous three-month (May’22 to July’22) period to 3.6% in the July’22 to September’22 period. Youth (16-17 years) unemployment increased from 15.1% to 18.5% compared to previous quarter. Nationally, the number of job vacancies for the period August’22 to October’22 was 1,225,000 which is fourth consecutive period showcasing fall in the number of vacancies. Accomodation and food service activities and Information and communication saw largest decreases – adding up to negative 23.2%.

According to Bank of England’s latest report, inflation is really high and is expected to fall sharply from middle of next year. Looking at the exchange rates, the GBP stands at €1.15 in November – €0.03 lower than in September’22. The latest data from Department for International Trade (Q2 2022) show exports valuing £5.62 billion from the East Midlands region.

Region at a Glance

---

*Net Value = Increase - Decrease

State of Economy Index

---

Compared to previous quarter, this quarter saw steep fall. The state of economy index value for the current quarter is 17.

Your personalised results

---

Chamber Commentary

---

A bumpy close to a turbulent year

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.

The State of the Economy Index – an ‘at a glance’ picture showing direction of travel for the local economy – has trended downwards throughout the year. However, within that data lies a multitude of experiences, not all negative, and some signs for positivity as we enter 2023.

Declining demand and cashflow – but capacity pressure valve released

Domestic demand has softened slightly as the year has gone on, with international activity also softening but showing some small signs of recovery. From Q2 onwards, cashflow has deteriorated with investment intentions also softening slightly as the year has progressed.

Recruitment difficulties have been the perennial issue, with this final set of data suggesting a drop-off in businesses seeking to recruit.

So, given the negative data described, what exactly are the causes for optimism?

Firstly, despite a softening, activity has not fallen off a cliff. The Bank of England forecasts a recession, but a shallow one as opposed to the sharp slowdown seen in 2008. Responses to our Quarterly Economic Survey back this up.

The gradual slowdown in demand has also created capacity within the economy – opening the pressure relief valve on prices that has been one of the drivers of inflationary pressure.

Inflationary pressures could ease off soon

While we’re on inflation, and the policy response, this has been one of the biggest concerns across the past 12 months. However, there are signs to suggest the drivers of this inflation may not be persistent across the coming year.

In Q1, the biggest factor causing inflation was raw material costs – this has fallen now, with costs for a number of commodities returning towards pre-pandemic levels as supply chains and demand find a new level.

This has been replaced by rising people, utility and fuel costs, but there is hope the latter two – driven largely by the war in Ukraine – are now starting to reduce and that employment costs will follow suit as demand for staff slows.

These changes, evidenced by our data, have all helped contribute to a fall over the year – albeit a gradual one – in the number of businesses telling us they are planning to put their prices up.

Stability could bring back confidence – but plenty still to do

Finally, that elusive but principal issue of confidence. Our respondents’ confidence in future turnover and profit increases has dropped significantly from where it was at the start of the year.

The war in Ukraine, political instability and policy flip-flops have all had a massive impact on sentiment, and we know that sentiment impacts tangible decisions – evidenced by the drop-off in investment intentions.

However, as the year closes out, there appears to be some greater political stability and a more consistent approach to policy, both of which may be behind a small improvement in Q4 of those businesses expecting profitability to improve in 2023.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.