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BCC Quarterly Economic Survey for Q4 2023: Business Confidence Boost Fails To Revive Investment

 

  • Business confidence improves in Q4, with 56% of UK businesses expecting an increase in turnover in the next twelve months.
  • Despite this boost, most firms continue to report no improvement to sales, cash flow or investment.
  • Downward trend in price growth expectations ends with more expecting their prices to rise over the next three months.
  • Hospitality sector continues to struggle disproportionately, with nearly a third (32%) of firms reporting a decrease in investment.

 

The BCC’s Quarterly Economic Survey – the UK’s largest and longest-running independent business survey – shows a small rise in business confidence in the final quarter of 2023. The percentage of firms expecting an increase in turnover over the next year (56%) has risen to the highest level since Q1 2022 when Covid restrictions were lifted. 

 

The data also reveals that more firms expect price hikes, ending the downward trend of the last two years.

The survey, conducted in November, of over 5,000 firms across the UK – 91% of whom are SMEs (fewer than 250 employees) – also reveals business performance across different sectors varies considerably.

Minor improvement in overall business conditions

The percentage of respondents reporting increased domestic sales rose slightly to 36%, compared with 35% in Q3. Meanwhile, 22% reported a decrease and 42% said sales had remained constant.

There were significant sectoral differences. 46% of consumer services firms said they had seen a boost in sales, whereas 35% of hospitality companies and 28% of retailers saw a decrease.

Slight increase in business confidence

The percentage of firms expecting to see their turnover increase over the next 12 months increased to 56%, from 53% in Q3. Only 15% of respondents are expecting to see their financial situation worsen in the year ahead, 29% expect things to remain the same.

Profitability confidence has also improved, with 47% of companies saying they expect profits to increase in the next year. That compares to 45% in Q3. 21% of respondents believe their profits will fall.

Downward trend in price expectations halts 

Despite inflation continuing to ease, more firms are expecting their prices to rise, compared with the last quarter. 47% of respondents are predicting an increase (compared with 41% in Q3), 49% think prices will stay the same, and just 4% are anticipating a decrease.

Slightly fewer firms cite interest rates as a concern

While inflation remains firms’ biggest concern (58%), a recent trend in rising worries over interest rates has eased. 39% of businesses say they are concerned about the cost of borrowing, compared with 41% in Q2 and 45% in Q3. These figures remain high compared with the pre-Covid trend.

Labour costs are now the number one cost pressure for businesses.

Concerns around wage costs was the biggest pressure for most firms for the second quarter running, although the percentage worried has dropped from 68% in Q2 to 66% in Q3. However, worries about utility prices fell even further from 63% to 59%, creating clear water with wage costs as the number one issue.

But there remain wide sectoral differences with manufacturers citing wages (68%), raw materials (65%) and utilities (65%) in a three-way tie as main factors driving price increases. While in hospitality, 81% of firms were most worried about utility costs, with wages in second place at 74%. The retail sector was least worried about labour costs, with 52% citing it as an issue, against 59% flagging utilities and 58% raw materials.

Most firms still not increasing investment

Challenging economic conditions continue to impact heavily on business investment. Overall, the percentage of respondents reporting an increase to investment in plant/equipment has increased only slightly from 23% in Q3 to 24% in Q4. 58% of businesses said investment had remained the same, 19% reported a decrease.

There are large sectoral disparities in investment levels. 32% of hospitality sector firms say they have decreased investment, and only 19% have increased. Meanwhile, in the transport and logistics sector, 36% of respondents reported a rise in investment – only 18% a decrease.

 

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

“However, while it’s likely the UK will avoid a technical recession, these results provide more evidence of a very low growth climate as most SMEs continue to report no improvement to sales, cash flow, or investment. 

“The data also reveal the disproportionate impacts of economic shocks on different types of businesses. Manufacturers, for example, are more likely to be exposed to the trade barriers established with Europe, while many firms in the retail and hospitality sector are reporting recessionary conditions.

“Businesses have been desperate for a clear long-term plan for growth from Government that addresses infrastructure, access to skills, and global trade.”

 

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

“Our data shows business confidence is growing, but real challenges remain in the coming year. 

“Worries about interest rates and inflation remain at historically high levels, despite a slight easing of concern. 

“The recruitment challenges many firms are facing underlines our calls for a skills plan from Government alongside an affordable immigration system. 

“Investment continues to the Achilles’ heel for business. The Chancellor’s decision in his Autumn Statement to make full expensing permanent was very welcome. 2023 needs to be the year when companies are given further assistance to invest.

“In the noisy election year ahead, it is crucial politicians remain focused on growing the economy and helping businesses thrive.”

Ross McNally, Chief Executive of Hampshire Chamber of Commerce said:

“Business confidence is steadily improving but it needs more positive signs of growth to unlock the business investment needed to drive ambition, global sales, and productivity. 2023 has been a tough year but with an impending election hopefully the aim of Government will be to steady the ship and provide more certainty around the economic context in which businesses can make longer term decisions.”

 

What businesses say:

“We shall have to increase our prices in order to maintain healthy margins as the cost of raw materials remain high, and we are affected by the increasing costs in transport and shipping, especially to the EU”

Micro professional services firm in South West England

“High interest rates and slowing growth means less heavy machinery is being bought”

Large construction firm in Northern Ireland

“Shortage of qualified staff will pressure salaries and costs that have to be passed on”

Small construction firm in South West England

“Our OEM customers dealers and end customers primarily in the materials handling sectors have high stock levels and are not replenishing stock due to the high cost of finance because of the high interest rates globally. Europe slowed down early in 2023 and now US market is slowing.”

Large manufacturer in Northern Ireland

 

The Q4 results are based on responses from 5,029 businesses online.

Further data breakdowns for Q4 QES data and graphics can be made available upon request from the BCC press office.

Due to rounding, not all percentages will add up to 100%.

The QES is produced by the BCC Insights Unit and Chamber of Commerce Network.

 

About the QES

The British Chambers of Commerce’s Quarterly Economic Survey is now in its 33rd year as the largest UK private sector survey of business sentiment. The survey is a leading indicator of UK GDP growth and is closely watched by policymakers, including HM Treasury and the Bank of England.

 

About the BCC Insights Unit

The BCC Insights Unit brings together all the strands of research the BCC undertakes, including the Quarterly Economic Survey, the largest private sector business survey in the UK; the Quarterly Economic Forecast, currently ranked by the Sunday Times as the country’s second most accurate; and a leading programme of business surveys which inform the national economic debate. The Insights Unit was launched on 3 July 2023.

 

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