Business confidence returning after EU vote but inflation remains a key risk

The results of the latest Quarterly Economic Survey (QES) from the Lancashire Chambers of Commerce shows that businesses are reporting solid growth, with expectations that turnover and profitability will improve getting stronger.

The Q1 2017 survey, compiled by the county’s Chambers of Commerce in association with Moore and Smalley Chartered Accountants and Business Advisors, shows that the manufacturing sector performed strongly in the first quarter of the year, particularly in the exports market, with the number of firms reporting improved sales and orders higher than in previous quarters. However, the rising cost of overheads and raw materials are presenting as a risk to growth in the medium term.

Although the performance of the services sector has not returned to historic trend levels, it is improving from its decline in the two quarters immediately following the EU referendum.

The results of the survey found that businesses are continuing to feel inflationary pressures. The percentage of manufacturers reporting raw materials as the key driver of increased prices is at the highest since Q4 2011, and in both sectors a significant proportion of firms anticipate having to raise their own prices over the next three months.

Commenting on the first quarter results, Babs Murphy, Chief Executive of the North & Western Lancashire Chamber, said: “In the here and now, many businesses are resilient and experiencing solid growth. Many firms tell us their short-term expectations are strong, but that the medium-term picture is far from clear.

“The rise in inflation seen since last year’s EU referendum is the biggest immediate pressure facing most firms. While manufacturers have enjoyed a good quarter, they are facing higher costs at the factory gates, which increasingly translates into companies having to raise their own prices. With inflation already above the Bank of England’s target, this squeeze on firms looks set to continue in the medium term.

“The myriad of upfront costs imposed by government – including business rates, Apprenticeship Levy, National Living Wage and insurance premium tax – are all adding to the overhead costs of firms and the pressure on prices.

“If higher inflation squeezes consumer spending as we expect, the current strength in business activity may not be enough to prevent a period of more muted economic growth.”

The results from the Chambers of Commerce survey were revealed to an audience of local businesses at Preston’s College this morning (Tuesday 11th April) by Stephen Gregson, Corporate Finance Director at Moore and Smalley. Commenting on the survey, he said:

“We often say that the QES has thrown up another interesting set of results. And sometimes that is truer than others. This is one of those times. In many respects it suggests a stronger performance than the last quarter or even a year ago – more so for manufacturing. But there is also some seemingly significant weakening in some areas- cash flow strength for instance.

“What we can say with absolute certainty is that the QES continues to perform a sterling job, not in giving us the answers to the questions – but in highlighting which might be the most relevant questions to ask.”