No Signs of Business Recovery – BCC Quarterly Economic Survey Q4 2022

No Signs of Business Recovery – BCC Quarterly Economic Survey Q4 2022

• After significant declines across all business conditions tracked by the BCC in Q3, most indicators have stabilised at a low level. 

• Profitability confidence remains at Covid-crisis levels; only one in three (34%) businesses believe their profits will increase over the coming year, while more (36%) expect a decline.   

• Just 33% of firms experienced an increase in sales over the past three months, while 25% of firms reported a decrease, with hospitality firms the least likely to report improvements.  

• More firms are reporting taxation (38%) and interest rates (43%) as growing business concerns.  

The BCC’s Quarterly Economic Survey (QES) for Q4 2022 shows key economic indicators have stabilised at concerningly low levels, following significant declines in Q3.   

The survey of over 5,600 firms – 92% of whom are SMEs – reveals business confidence, conditions and sales have stabilised at low levels, while inflation remains the top external factor of concern.

The research took place between November 7 and November 30, across the period the Government’s Autumn Statement was announced.

Business activity not experiencing any bounce back from significant fall in Q3 

The percentage of firms reporting increased domestic sales has stabilised at the low level reported in Q3. Only 33% of firms experienced an increase in sales over the past three months, while 25% of firms reported a decrease in sales and 42% report no change.

Activity in the retail and hospitality sectors remains particularly weak. Both sectors are firmly in ‘negative territory’, with more firms reporting a decrease in sales than an increase over the past three months.

The hospitality sector is also struggling to operate at full capacity; three quarters (74%) of hospitality businesses reported they are operating below capacity.

More firms continued to report decreased cash flow versus increased cash flow.

Only 24% of business said their cash flow has increased over the last three months, while 30% have seen it decrease.

Business confidence remains at Covid-crisis levels 

After business confidence plummeted in Q3, firms continued to report a negative outlook for the future in Q4. Less than half (44%) of firms expect their turnover to increase over the next 12 months, while 25% expect a decrease. Those expecting turnover to increase remains ten percentage points down from a level of 54% in Q2 2022.

Profitability confidence remains much weaker than turnover confidence and has stabilised at Covid-crisis levels. Only one in three (34%) businesses believe their profits will increase over the coming year, while 36% now expect a decrease.

Little sign of plans to increase business investment

Increases to business investment remain low. Only 21% of firms reported an increase to plant/equipment investment over the past three months, while 57% reported no change, and 22% reported a decrease.

Inflationary pressures remain top business concern   

The percentage of firms expecting their prices to rise over the coming months (60%) remains near record highs but is showing slight signs of easing, down from 62% in Q3.

Concern about inflation also remains at record highs; 80% of firms cited inflation as a growing worry to their business. But there are also significant jumps in the percentage of firms concerned about taxation (38%) and interest rates (43%).

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said:     

“These results provide further confirmation that business conditions deteriorated significantly in the second half of 2022.

“The situation remains critical for the majority of SMEs who find themselves cut adrift by monumental inflationary pressures, often driving triple-digit percentage cost increases, particularly on energy.

“Business confidence remains worryingly low, with only a third of firms reporting improvements to sales, and less than a quarter reporting increased investment. The widespread economic damage caused by Covid shutdowns has been compounded by subsequent inflation, global trade crises, and new trade barriers with the EU. For many SMEs, the cost of doing business is now simply too high.

“While the change in administrations from Truss to Sunak may have stabilised markets, the Autumn Statement on 17 November appears to have had no impact on business confidence. Indeed, while inflation is still by far and away the top concern for businesses, taxation has now become far more of an issue for SMEs.

“These results reaffirm the need to create a stable environment for businesses to invest, with energy, improvements to infrastructure, access to skills, and removal of trade barriers, particularly with the EU, all top priorities for firms.”

Responding to the findings, Director General of the British Chambers of Commerce, Shevaun Haviland, said:      

“The outlook from businesses remains bleak. Now, more than ever, we need to create the right conditions for firms to invest and grow.

“Providing businesses with clarity regarding the new energy support package must be top of the Government’s agenda for the New Year, after they failed to do so before Christmas.

“We urge Government to promote business growth by investing in public infrastructure and incentivising international trade, with a particular emphasis on making the UK the global hub for green innovation.

“Barriers to trade must be removed in order to allow firms realise their full trading potential. The impasse over the Northern Ireland Protocol continues to loom and the UK Government must work with the European Commission to reach a negotiated solution on its business compliance burdens.

“The Government’s New Year’s resolution should be to put business support for SMEs at the heart of its agenda and get the UK back on the road to recovery.”

What Businesses Say:

“Our electric costs will rise from £34,000 per year to around £250,000 from March and there is so much uncertainty. We want to invest to make us more efficient and reduce our electrical usage, but there are no grants on offer to help.”

Small services firm in Somerset 

“Uncertainty caused by bad government decisions over an extended period have led to wasted effort and lost opportunities in the construction sector.”

Micro construction firm in Kent 

“We are desperately short of semi/unskilled workers. We could increase business by about 20% if we could employ. We are turning away work as we are struggling to meet current requirements with the staff we have.”

Small professional services firm in Sussex 

“We are still suffering from the pretty much total loss of our European export trade. This is directly as a result of Brexit and shipping difficulties, including factors such as double duty payments. This has reduced turnover by 50%.”

Micro retailer in Norfolk