Quarterly Economic Survey - Q1 2024

Introduction

The following report uses data taken from the Quarterly Economic Survey carried out by the Chamber from 12/02/23 and 11/03/23 in the first quarter (Q1) of 2024. This regular survey asks businesses a series of questions on key economic indicators.

Summary

In total, there were 322 responses. Of these, 34.0% can be broadly classified as Manufacturers and 66.0% as Service Sector businesses.

Out of 322, 41.0% of respondents were micro, 32.0% were small and 21.0% were medium-sized businesses. 6.0% of respondents were large businesses.

40.0% of respondent businesses were active in international markets.

Wider Economic Context

The unemployment rate for East Midlands reported by the Office for National Statistics (ONS) increased by 0.1% compared to the previous three-month (August to October 2023) period to 5.1% in the October to December 2023 period. Youth (16-17 years) unemployment decreased from 23% to 20.8% over same time period of October to December 2023. Nationally, the number of job vacancies for the period December to February 2024 was 908,000 showcasing fall in the number of vacancies by 43,000 from September to November 2023. This was 20th consecutive decline in number of job vacancies with number falling in 14 out of 18 sectors.

According to Bank of England’s latest Monetary Policy report, inflation culd fall to 2% target in few months before rising slightly again. The interest rates will be kept long enough to reach the target of 2% inflation. Looking at the exchange rates, the GBP stands at €1.16 in March’24 – €0.01 higher than in December’23. The latest data from Department for International Trade (Q3 2023) show exports valuing £6.76 billion from the East Midlands region.

Region at a Glance

*Net Value = Increase - Decrease

State of Economy Index

Compared to previous quarter, the current quarter saw steep growth in the state of economy index. The value for first quarter of 2024 is 124.

Results

For businesses involved in the UK market, looking at the past 3 months (excluding seasonal variations), has your activity/sales/custom: (trend over 4 quarters)

For businesses involved in the UK market, for the next 3 months (excluding seasonal variations), have orders/advanced custom/bookings: (trend over 4 quarters)

For businesses involved in overseas markets, over the past 3 months (excluding seasonal variations), has your activity/sales/custom: (trend over 4 quarters)

For businesses involved in overseas markets, for the next 3 months (excluding seasonal variations) have orders/advanced custom/bookings: (trend over 4 quarters)

During the last 3 months, has your labour force: (trend over 4 quarters)

Over the next 3 months, do you expect your workforce to: (trend over 4 quarters)

Have you attempted to recruit within the past three months? (trend over 4 quarters)

If you have recruited over the past 3 months, did you experience any problems in finding suitable staff? (trend over 4 quarters)?

For which job types did you experience a problem: (latest quarter Q1 2024)

If you have recruited over the past 3 months, what type of positions were they: (latest quarter Q1 2024)

During the last 3 months, has your cash-flow: (trend over 4 quarters)

Are you currently operating at: (trend over 4 quarters)

Over the next 3 months, do you expect your prices to: (trend over 4 quarters)

Is your business currently suffering pressures to raise its prices as a result of any of the following: (trend over 4 quarters)

What changes have you made to your investment plans for plant / machinery / equipment: (trend over 4 quarters)

Over the past 3 months, what changes have you made to your investment plans for training: (trend over 4 quarters)

Over the next 12 months do you expect your turnover to: (trend over 4 quarters)

Over the next 12 months do you expect your profitability to: (trend over 4 quarters)

Which of the following are more of a concern to your business than 3 months ago: (latest quarter Q1 2024)

Chamber Commentary

An air of optimism in the East Midlands business community

Following a difficult end to 2023, it’s encouraging to see that almost all our indicators of economic health for businesses have moved in the right direction for the first quarter of ’24. UK orders have grown from last year – with domestic sales also maintaining their growth rate – cash flow has improved and more people expect to see their workforce grow over the coming quarter. However, perhaps most encouragingly, investment intentions in people and machinery – which fell back at the end of last year – have both seen growth, suggesting more businesses are pulling the trigger on the training and/or capital spend that was relatively slow moving last year.

These improvements and others are underlined by a growth in business confidence, with a net +47% expecting turnover to improve over the coming year (up from +40% last quarter) and a net +23% expecting improvements in profitability (up from +14%). While these overall amounts remain low compared to historical data they are as high as they have been at any point over the last 12 months.

Undoubtedly there is a new air of optimism as we look ahead to the rest of 2024, however, there remain a couple of flies in the ointment. Firstly, international activity remains inconsistent – overseas orders deteriorated in the quarter when compared to last year – and despite overall inflation falling, price pressures for businesses seem to be stubbornly hanging on, driven primarily by labour costs, although this has softened slightly from when the survey was last conducted in November.

But there are signs that this pressure may not be long loved as the year moves on. In the same quarter that the Office for National Statistics changed the way it calculates unemployment, giving the region as a whole an unemployment rate of 5.1% (up from 3.8% based on previous methodology), for the first time in a long time we saw more businesses report that they didn’t try to recruit as opposed to those that did (52% vs 48%). Perhaps unsurprisingly, those businesses attempting to recruit reporting difficulties in finding the right staff fell from 72% to 64%. If labour costs remain the biggest driver of inflationary pressures for businesses, this data may mean that taking some of the heat out of the recruitment market will lead to more measured salary ranges being offered later in the year (not withstanding increases in the National Living Wage).

So overall, as we move to within a maximum of 10 months out from a General Election, the East Midlands economy appears to be in decent shape and confident of further improvements. Historically our State of the Economy Indicator shows that election years often lead to economic uncertainty and corresponding drops in performance, however, after several years of uncertainty perhaps there’s not much more to phase East Midlands businesses. Regardless of how the politics plays out, the business community seems to ready to perform well in 2024 and demonstrate again the resilience it has in the face of a changing external environment.