Business conditions, measured by sales and cashflow improved in Q2, returning to pre-pandemic levels.
Business confidence has increased, with 58% of firms expecting an increase in turnover in the next twelve months.
Fewer firms expect to increase their prices in the next three months.
Concern from businesses about external factors continues to decline – with worries about inflation falling to 49% of companies.
Despite a boost in conditions and confidence most firms (75%) are still not increasing investment, with wide sectoral variations.
The BCC’s Quarterly Economic Survey – the UK’s largest and longest-running independent business survey – shows measures of business confidence and business conditions slightly improved in Q2 2024, albeit from a very low base.
38% of firms (compared with 36% in Q1) said they had seen an increase in domestic sales over the previous three months, while 43% reported no change, and 20% a decrease.
After a static picture in Q1, business confidence has increased slightly in Q2. 58% of firms say they are expecting an increase in turnover over the next year compared with 56% in Q1. 29% expect no change and only 13% expect a decrease.
With inflation easing to target – the data also reveals that fewer firms (39% compared to 46% in Q1) expect to hike their own prices in the coming months.
The survey, which was conducted between 13th May and 10th June, of nearly 5,000 firms across the UK (91% of whom are SMEs – fewer than 250 employees) – also reveals that despite improved trading conditions most firms are still not increasing investment.
Improvement in overall business conditions
The percentage of respondents reporting increased domestic sales rose to 38%, compared with 36% in Q1. 43% of firms said sales had remained constant and 20% reported a decrease.
There were some sectoral differences – 37% of manufacturers and 40% of business-to-business service companies (such as legal and finance) reporting a boost in sales. By contrast, only 33% business to consumer firms (such as hospitality and retail) saw an increase.
There has been an uptick in firms experiencing an increase in cash flow, rising to 28% compared with 26% in Q1. 47% report no change in cash flow, while 24% report a decrease.
Business confidence has increased
58% of firms expect to see their turnover increase over the next 12 months – an increase from 56% in Q1. 29% expect no change and only 13% expect to see turnover decline.
Profitability confidence has also increased, with 51% of companies expecting profits to increase in the next year. That compares to 48% in Q1. 32% expect no change and 17% of respondents believe their profits will fall.
Fewer firms expecting to increase prices
As inflation continues to ease, fewer firms are now expecting to put up their prices. 39% of respondents say they are expecting to raise the cost of their goods or services in the next three months, compared with 46% in Q1. 59% think their prices will stay the same, and just 2% are expecting a decrease.
Labour costs continue to be cited as the main cost pressure across all businesses. 67% of responding firms say they are under pressure to raise prices because of this (68% in Q1). Some sectors are feeling this pressure more than others, with 77% of hospitality firms and 76% of construction or engineering firms citing it as a key driver.
Concern about external factors continues to decline
While inflation remains the biggest external worry among businesses, the level of concern has fallen significantly. Around half (49%) of firms say they are more concerned about inflation than in the last quarter (58% in Q1). That’s returning to levels of concern last seen in 2021 and significantly below the 84% reported in Q2 2022, at the peak of the inflation crisis.
39% of respondents say they are concerned about competition, and 36% tax. With an interest rate cut likely in the coming months – the percentage of firms raising the cost of borrowing as an issue remains at roughly the same level – 34% in Q2 compared with 35% in Q1.
Most firms still not increasing investment
Despite the boost in business confidence and conditions, investment levels continue to struggle. Most firms say they haven’t increased the amount of new plant, machinery and equipment they’ve bought or rented. Only 25% reported an increase in investment, compared with 24% in Q1. 61% said levels had remained the same, 14% reported a decrease.
There are large sectoral disparities in investment levels. 42% of transport and logistics firms say they have increased investment levels, while the figure for retail companies was just 19%.
David Bharier, Head of Research at the British Chambers of Commerce said:
“The latest results from our QES show that both business conditions and business confidence have improved, albeit from a relatively low base.
“The last four years have seen SMEs deal with one crisis after the other, from Covid lockdowns to supply chain breakdowns and new trade barriers with the EU. As some of these crises have ebbed, more SMEs are regaining confidence and reporting increased sales and cash flow.
“The data also show that concern about inflation among businesses has dropped to levels last seen in 2021 as fewer firms expect to raise prices. A Bank rate cut later this year will help bring down borrowing costs.
“However, investment levels remain a long-term concern and significant sectoral divergences remain, as sectors such as hospitality and retail continue to report far tougher trading conditions.
“The new Government should capitalise on the confidence momentum and focus on addressing skills shortages, trade barriers, and unlocking the potential of AI and green innovation.”
Shevaun Haviland, Director General of the British Chambers of Commerce said:
“It’s really encouraging to see positive shoots of recovery from businesses across the UK.
“Confidence has been improving among companies in recent months. Our data show the tangible impact of that positivity, as businesses report improved sales and cashflow. But investment levels remain an area of concern.
“Our message to the new Government is clear. We need a long-term economic plan that has the green transition at its heart, with a workforce fit for the future, living in thriving local places and powered by businesses that are globally facing and digitally enabled.
“Business stands ready to work in partnership with Government to capitalise on the positive signs our data is showing.”
More detail on the QES results can be found here.
BCC article here
