Mixed picture emerges post-referendum

Devon Chamber of Commerce has commented on the results of the British Chambers of Commerce (BCC) Quarterly Economic Survey – Britain’s largest and most authoritative private sector business survey, based on more than 7,000 responses from firms in Q3 2016 issued today. Which shows a mixed picture, with an improved short-term performance in the manufacturing sector set against a further slowdown in growth in the services sector.

The survey – the first covering the period after the EU referendum – shows that nationally manufacturers enjoyed improved domestic and export sales compared with the previous quarter, with some benefitting from sterling’s recent fall. Meanwhile, the balance of service sector firms reporting improved domestic and export sales was at the lowest level seen since 2012.

The survey’s results suggest that Devon’s economy is still growing – albeit at a lower level than before the referendum – and supports the BCC’s forecast for growth of 1% in 2017.

The survey suggests that near-term uncertainty following the vote to leave the European Union has led businesses to lower their expectations for hiring, turnover, and investment in plant, machinery, and training.

Given this mixed picture, and muted business investment intentions, Devon Chamber of Commerce is urging the government to use next month’s Autumn Statement to boost business confidence – by giving the green light to key infrastructure projects, and by introducing measures that ‘crowd in’ business investment and job creation.

Key findings in the Q3 2016 survey:

  • Overall, the figures for both the manufacturing and services firms indicate growth, but at a slower pace than before the referendum
  • In the manufacturing sector, the balance of firms reporting improved export sales rose to +17, from +9 in Q2 2016.
  • The balance of firms reporting an increase in advance orders is +12, up from +5. One factor may be the fall in sterling, which has made some UK manufacturers more competitive.
  • Domestically, the balance of manufacturers reporting increased sales rose to +13 from +9, although those reporting increased advance orders fell slightly, to +7 from +9
  • In the last three months, the balance of manufacturers hiring more staff rose three points to +15 from +12, although in the services sector the number fell five points to +14 from +19
  • Fewer firms in both sectors expect to take on staff in the next year. For services the balance for firms (+15, down 13) is the lowest since Q1 2013
  • In the services sector, many balances saw a decrease on the previous quarter
  • The balance of services firms reporting improved domestic sales fell sharply to +9 from +24, while the advance orders balance fell from +20 to +8 – indicating a significant slowing of growth
  • On services exports, the balance of firms reporting improved sales fell from +11 in Q2 to +8 in Q3 2016, while the balance of firms reporting an increase in advance orders fell further, from +13 to +5
  • Fewer firms in both sectors are reporting that they are confident that their turnover and profitability will improve in the next year, although both remain positive
  • Firms in both sectors have reported that the exchange rate is a greater concern to their business than three months ago, with 30% of services businesses (up from 15%) and 48% of manufacturers (up from 35%).

Commenting, George Cowcher, Chief Executive of Devon Chamber of Commerce said:

“Although it is important not to take one quarter’s figures in isolation, our survey does show that growth has slowed further in Devon since the EU referendum. Boosting business must be a key task for government in the months ahead, particularly as forward confidence on turnover and profitability has flagged for firms across the UK.

“The Prime Minister has given businesses some clarity on the timetable for Article 50, and on short-term regulatory and legal issues. This is helpful, but needs to be followed up by a firm demonstration that the government has a clear and coherent strategy to defend the UK’s economic and business interests in the negotiations that lie ahead.

“Devon firms are concerned over investment, hiring, and profitability. The Chancellor’s Autumn Statement is a crucial opportunity to incentivise business investment and overseas trade. Devon Chamber of Commerce will continue to gauge views of its members to lobby government for measures to support business.”