QBR Q1 2023

DOMESTIC DEMAND

Across the board, 46% of firms noted an increase in domestic sales (up from the 40% reported in Q4 2022). 16% of businesses in both sectors combined saw their UK sales fall this quarter (down from 21% in the previous quarter) which meant the overall balance score went up to 65 – the highest we’ve seen since Q2 2022. The trend was replicated in the individual sectors – as the domestic sales balance score for manufacturers returned to positive territory with a 19-point increase to a figure of 68. Much of this was down to the fact that 53% of manufacturers saw their UK sales increase over the last three months (in comparison to the 33% listed in Q4 2022). Likewise, the services sector balance score for domestic sales went up by two points to a figure of 64 which was predicated on a greater number of services firms experiencing an uplift in UK sales (up from 42% to 44% in the current quarter) and a drop in the number of services firms that saw a decline in domestic sales activity over the previous three months (down from 18% in Q4 to 16% in Q1).

Advanced UK orders remain in a healthy position as the overall balance score went up by seven points to a figure of 64. In total, 42% of firms in the two sectors combined expect their advanced domestic orders to increase over the next three months (which in itself is an increase of seven percentage points compared to the last quarter). A mixed picture emerged at the national level as the ONS revealed that UK GDP grew by 0.3% in January after shrinking by 0.5% in December. Many city analysts were hoping that the Chancellor would use this unexpected fiscal headroom to announce a plan to drive growth at the Spring Budget. Whilst the Chancellor made a number of eye-catching announcements around the extension of childcare support for working parents and new modified versions of Investment Zones, many businesses will have been left bemused by the lack of equivalent support that was bestowed on households struggling to pay their energy bills. Clearly, alleviating the upfront cost pressures that businesses face on a daily basis remains a necessity if we are to drive firm-led growth.

PRICE PRESSURES & EXTERNAL FACTORS

Half of the businesses surveyed in both sectors combined revealed that they were expecting the price of their goods and services to go up in the next 3 months – a fall of 8% in direct comparison to Q4. This was o set by the fact that 47% expected their prices to remain the same over the coming months (an increase of 6% from the last quarter) which led to the overall balance score going down by five points. When quizzed over the reasons behind their intention to raise their prices, 25% namechecked labour costs, 23% referred to utility costs and 14% cited fuel costs.

37% of businesses referred to the impact of inflation as a more prominent factor of concern compared to three months prior – an increase of 2% compared to last quarter. This is perhaps unsurprising as the rate of CPI unexpectedly rose to 10.4% in February, mainly driven by food prices rising at a pace not witnessed for 45 years. The following day, the Bank of England responded by raising the base rate for the eleventh time in a row to 4.25%. Much of the MPC’s decision was no doubt influenced by the unexpected rise in inflation we saw in February along with the turmoil we’ve seen in the banking sector over the last couple of months. The short-term impact on businesses – notably in form of higher borrowing costs – is likely to have an immediate impact. Within this context, it was no surprise to see 18% of businesses cite rising interest rates as more of a concern than three months ago (albeit slightly lower than the figure of 20% posted in Q4 which followed the fallout from the Mini Budget of September).

The domestic sales balance score rose by five points – reversing a nine-month trend which started last summer

The price index balance score saw a welcome fall to a figure of 74 but still remains exceptionally high within historical standards

In total, 22% of companies operating in both sectors combined reported an increase in international sales over the previous three months – a 7% drop compared to Q4 2022. 57% of firms across the two sectors reported constancy in their export sales in this quarter – an increase of 7% compared to the end of last year, which meant the overall balance score fell by three points and edged closer to negative territory. Di ering trends emerged within the individual sectors as the manufacturing balance score for export sales went up by two points to 57 – much of this was down to a rise in the percentage of manufacturers experiencing enhanced international demand for their goods and services (up from 33% in Q4 to 40% in the current quarter). By contrast the service sector balance score for the same indicator fell by four points to a score of 50, with only 17% of service firms noting an increase in export sales in Q1 (compared to 27% in Q4) and a greater percentage of service businesses reporting constancy in their non-UK sales this quarter (up from 54% in Q4 to 65% in Q1).

By contrast, the aggregate export demand balance score across the sectors saw an uplift of two points to a figure of 57. The main contributing factor behind this development was an increase in the percentage of firms projecting a growth in export orders over the next three months (up from 27% in Q4 to 31% in this quarter). At the national level, the value of goods exports deceased by £0.6bn in January 2023, as exports of fuels, chemicals and material manufactures to EU nations each fell by £0.2bn (the impact was amplified once removing the e ect of inflation). In April, the Government announced the UK’s new trade pact with 11 Asia and Pacific nations covering a marketplace of around 500 million. A number of firms in our region that trade internationally are likely to welcome the news, especially as the Asia and Oceania market ranks as second on the list of top export markets for the West Midlands in 2022. For those businesses keen to establish or expand their footprint in these regions, our new Greater Birmingham Global Chamber of Commerce is designed to create opportunities for local businesses in a wide range of international markets – visit the GBCC website for more information.

WORKFORCE & RECRUITMENT

The workforce balance score rose by two points to a figure of 62 – the highest on record since the start of 2022

32% of businesses added sta to their workforce over the previous three months – a minor increase of 2% compared to Q4. The percentage of firms that saw their workforce contract fell from 10% to 8% in the current quarter which led the overall balance score to go up. 68% of businesses in the two sectors combined attempted to recruit sta in Q1 – a welcome uplift of 7% in comparison to the end of last year. It was interesting to note that there was a visible fall in the number of firms attempting to permanent sta this quarter - down from 27% in Q4 to 19% in Q1, the lowest figure on record since the start of 2015. By contrast, we saw a clear rise in the number of businesses attempting to hire temporary sta , up from 11% to 19% which could reflect seasonal demand. Of those businesses attempting to hire sta , 68% faced challenges during the recruitment process (only one percent lower than the figure of 69% which was recorded in Q4).

68%

68%

O cial Government data revealed that the employment rate for the UK was 75.7% between November 2022 and January 2023 (0.1% higher than August to October 2022). Nationally, unemployment remained at 3.7% and economic inactivity fell by 0.2 percentage points to 21.3%. during the same period. Regionally, the data mirrored some of the underlying trends which emerged from our survey, as the West Midlands employment rate was 74.0% between November 2022 and January 2023, a 0.3 percentage point increase since the previous 3-month period (August to October 2022). Unemployment in the region was 4.5%, having decreased by 0.4 percentage points, however, this remained the joint highest unemployment rate estimate in the UK (joint with London). The regional rate of economic inactivity was unchanged, at 22.5%. Many of the fundamental factors behind these long-term structural issues have been examined as part of the West Midlands Local Skills Improvement Plan which explores the provision of post-16 education and training, and the important roles that local businesses can play in shaping this landscape. The GBCC has worked closely with Chambers across the WMCA area and Warwickshire to deliver a business engagement strategy as part of this research – visit our website for more details.

The export sales balance score fell to 51 this quarter –the lowest on record since the start of 2021

63% of businesses expect their turnover to go up over the course of the year – the highest on record since the end of 2021. In addition, only 12% expect their turnover to fall in the next 12 months, which meant the overall balance score rose by seven points to 76. Likewise, just over half of the businesses surveyed expect their profits to increase in the next 12 months – the highest on file since the start of 2022; this was a 10% increase compared to Q4 2022, which meant the overall balance score went up by 10 points to a figure of 68.

It was also pleasing to see the indicators for both training and capital expenditure investment go up this quarter. In particular, the capex balance score went up from 50 to 58 this quarter – mainly driven by a greater percentage of businesses expecting their capex investment to go up in the next 3 months (up from 19% in Q4 2022 to 28% in the current quarter). In addition, the training balance score increased by four points to a figure of 62 as 32% of businesses in both sectors combined expect to increase their training spend over the next 3 months (up from 28% in Q4). We also saw a drop in the percentage of firms that were planning to cut back on their training spend over the next quarter (down from 13% in Q4 to 8% in Q1 2022) which led to an overall increase in the balance score.

Raj Kandola Director of External A airs

O cial Government statistics revealed that UK business investment rose by 4.8% in Quarter 4 of 2022 (October to December) and is 13.2% above the level it was in the same quarter of 2021. The level of business investment at the end of last year is nearing the level we saw prior to the onset of the pandemic. It was pleasing to see that business investment increased by 9.9% in 2022 following a 0.9% increase in 2021 and gross fixed capital formation (which essentially refers to whole economy investment across the public and private sector) also increased by 1.5% in Q4 2022. All of this is promising and shows the value of investing in the economy and the broader benefits this brings.

The Chancellor received many plaudits at the recent Budget for introducing a move towards full expensing in relation to capex investment; however, for the measure to be truly e ective, it’s a policy that needs to be implemented permanently in order to enable long term investment at firm level. Investment in infrastructure remains essential if we are to drive productivity gains and fuel business confidence across the country. HS2 is a case in point. A new report, HS2 in the West Midlands, revealed that to date, HS2 has awarded over £1.7bn worth of contracts to West Midlands businesses and more than 8,800 people are currently working on the project in our region. Despite the challenging fiscal constraints the Government is currently facing, the decision to delay the delivery of the Phase 2 leg from Birmingham to Crewe seems short sighted at best, given that any delay is likely to add to costs in the long term. The broader socio-economic benefits that the project has brought our region are clear for all to see and if the Government is serious in its intention to bring the levelling up agenda to life, then backing this once in a lifetime opportunity and delivering it as quickly as possible remains essential.

The balance scores for turnover and profitability saw a welcome uplift as business confidence continues to build despite the broader uncertainty shrouding the economy

The Government needs to create a platform of certainty in order to encourage businesses to invest in their people and products.

Greater Birmingham Chambers of Commerce

Our latest Quarterly Business Report underlines the growing levels of confidence amongst businesses operating in Greater Birmingham. Both turnover and profitability projections have risen, domestic activity has picked up over the past three months and recruitment activity has also seen a welcome uplift as a greater number of businesses have added to their headcount in comparison to the end of last year. It’s also pleasing to see the growth in investment activity, particularly in relation to capital expenditure and training sta – a key driver in unlocking stagnant levels of productivity growth. All of which is reassuring given the broader economic challenges our businesses are facing on a daily basis as spiralling energy bills, soaring inflation and global supply chain disruption continue to hamper economic activity both home and abroad.

Within this context, it is perhaps not surprising to see that export activity amongst local firms remains sluggish and despite a fall in the balance score, price pressures remain exceptionally high. In addition, whilst hiring activity has picked up, recruitment challenges are still ingrained for the majority of businesses attempting to add to their headcount. Driving investment into our region will remain a key priority for the year ahead and in March, we were delighted to see that more controls over the levers of economic growth were granted to the West Midlands Combined Authority. The GBCC has long called for greater devolution of powers at the regional level in order to unlock the potential that lies at the heart of the region – we look forward to working with the West Midlands Mayor and other key stakeholders to ensure the voice of business remains at the heart of this agenda.

The Chancellor of the Exchequer delivered his Spring Budget in March, which included a number of key implications for regional businesses. Current investment plans for 28% of Q1 survey respondents had been revised upwards, whilst 60% remained unchanged. The Budget’s 100% capital allowances for qualifying plant and machinery could, for instance, serve to have a positive impact on investment decisions amongst Greater Birmingham businesses for the next three qualifying years to March 2026.

Reflecting overall levels of confidence, 63% of firms were confident that turnover would improve – the highest since Q1 2022/23. Similarly, levels of buoyancy were felt with regard to profitability, with over half of all respondents (51%) confident that this would improve. The Budget’s announcement of a West Midlands Investment Zone will further serve to address local barriers to productivity through tax relief and grant funding.

In terms of trade, the proportion of businesses indicating that their UK market sales had increased over the preceding 3-month period rose for the third successive quarter to 46%. This trend was also mirrored in terms of advanced orders and bookings. However, these levels are still some way below the position at Q1 2022 (-8 percentage points against sales, and -10 percentage points against advanced orders).

Just under a third (32%) of business respondents indicated that their workforce had increased over the past quarter, whilst 60% remained constant. Looking ahead, 38% indicated that their workforce would probably increase in size, whilst the majority of respondents again indicated constancy in workforce size (60%). Of the 68% of firms that were found to be actively recruiting, the same proportion experienced di culty in doing so – an area of known business challenge that the Chancellor could arguably have done more to address.

About the Quarterly Business Report

an up-to-date snapshot of the performance of the Greater Birmingham business community. It is the most comprehensive, regular report of its kind in the city-region. Underpinning our report is data gathered from quarterly surveys on key indicators such as sales, exports, investment intentions and the workforce. The Greater Birmingham Quarterly Business Report launched in 2016, succeeding the previous Quarterly Economic Survey Report.

The Chamber surveys businesses across the Greater Birmingham area, which includes Birmingham, Solihull, Sutton Coldfield, Lichfield and Tamworth, Cannock Chase and Burtonon-Trent. Balance figures are determined according to business responses to the indicators: an increase (multiplied by 1), remain constant (multiplied by 0.5), decrease (multiplied by 0). A figure over 50 is indicative of growth; a figure under 50 represents contraction. Note that

Henrietta Brealey

Chief Executive Greater Birmingham Chambers of Commerce

Professor Julian Beer

Deputy Vice-Chancellor Birmingham City University

About GBCC

The Greater Birmingham Chambers of Commerce is a membership-led, business support organisation that has acted as the voice of local businesses since 1813. Today, we continue to connect, support and grow local businesses.

We are one of the largest Chambers in the country, with 2,500 member companies covering six geographic areas across the region (Birmingham, Burton, Chase, Lichfield and Tamworth, Solihull and Sutton Coldfield) and four themed divisions (Asian Business Chamber of Commerce, Future Faces, the Transatlantic Chamber of Commerce and the Greater Birmingham Global Chamber of Commerce).

Members range from young professionals to SMEs and large, high-profile organisations, including 38 Chamber Patrons comprising companies such as RSM, HS2 and The NEC Group.

About Birmingham City University

Birmingham City University (BCU) is a dynamic practice led, research inspired anchor institution with 30,000 students from 126 countries, contributing £392m GVA annually to regional GDP (£532m nationally). It comprises four faculties delivering 1,000+ courses, supported by 1,545 practice-based academics.

BCU’s ‘University for Birmingham’ mission reflects its civic university role, with a Strategy which places regional engagement at the core of its ambition. The University has an established national and international profile for its work on STEAM (STEM with Arts) - an approach that uses interdisciplinary and transdisciplinary thinking, stimulating new knowledge and ideas, supporting open innovation and regional growth, and driving talent to support future employer needs.

BCU actively engages with 3,000+ businesses regionally, nationally and internationally and has extensive sector linkages driving research, collaboration and innovation around identified priority areas and economic strengths including creative and digital, health, and green technologies. In 2021, the University secured the Investor in Innovation standard from the Institute for Innovation and Knowledge Exchange in recognition of its work with businesses and partners to drive innovation and growthjust the second university in the country to be handed the accreditation.

If you have any further questions on the report, please contact Gemma Dilkes on G.Dilkes@birmingham-chamber.com. For more information, go to greaterbirminghamchambers.com.

Join the conversation by following @grbhamchambers and using #GBCCQBR