- Following improvements to business conditions in the first half of 2024, key indicators stalled or declined in Q3 – with manufacturing suffering the most.
- Taxation is now more of a concern than inflation for business, cited by nearly half of businesses (48%).
- Business confidence has declined slightly, with 56% of businesses expecting an increase in turnover in the next twelve months.
- The proportion of businesses expecting to put up prices has levelled off (39%) after falls earlier in the year.
- Most businesses (77%) are still not increasing levels of investment.
In the first major survey of business sentiment since the General Election, the BCC’s Quarterly Economic Survey – the UK’s largest and longest running independent business survey – shows taxation is now the main area of concern for businesses.
Ahead of the Budget later this month, 48% of businesses cited it as a worry (compared with 36% in Q2). Concern about inflation and interest rates continues to slowly decline.
35% of businesses (compared with 38% in Q2) said they had seen an increase in domestic sales over the previous three months, while 43% reported no change, and 21% a decrease. The production and manufacturing sector report the toughest conditions, with 27% of businesses experiencing a decline in sales.
The survey was conducted after the General Election with fieldwork carried out between 19th August and 16th September 2024. The data from over 5,100 businesses across the UK (91% of whom are SMEs – fewer than 250 employees) also shows that most businesses are still not increasing investment.
Taxation now the primary external concern
48% of responding businesses say taxation is now more of a concern than three months ago, compared with 36% of businesses in Q2, with the professional services (53%) and construction sectors (51%) more likely to cite this.
Concern about other external issues continues to ease. 46% of businesses say they are more worried about inflation compared to last quarter (49% in Q2 and 82% in Q2 2022). Concern about interest rates continues to fall, down to 29% of businesses (34% in Q2).
Business conditions struggling
The percentage of respondents reporting increased domestic sales has fallen to 35%, compared to 38% in Q2. 43% reported no change and 21% of businesses said they had seen a decrease in sales.
There were some sectoral differences – with 27% of businesses in manufacturing and retail reporting a fall in sales in Q3. Meanwhile, 42% of marketing, media and advertising businesses said they had seen a rise.
Business confidence flatlines
56% of companies expect to see their turnover increase over the next 12 months – a slight decrease from 58% in Q2. 29% expect no change and 15% expect to see turnover decline.
Profitability confidence has also fallen, with 48% of businesses expecting profits to increase in the next year. That compares to 51% in Q2. 32% expect no change and 20% of respondents believe their profits will fall (compared with 17% in the previous quarter).
Most businesses still not increasing investment
Only 23% of responding businesses say they increased investment levels (new plant, machinery or equipment bought or rented) over the last three months. That’s down from 25% of businesses in Q2. 59% say investment has remained the same, 18% reported a decrease.
Considerable sectoral disparities exist, with retailers least likely to report increased investment (21%). While 30% of production and manufacturing businesses say they have increased investment over the last three months.
Expectation of price increases is levelling off
The proportion of businesses expecting to raise prices remains the same as last quarter at 39%, after a rise earlier in the year. 58% of businesses say they expect prices to stay the same, and just 3% are expecting a decrease.
Labour costs continue to be cited as the main pressure for businesses, cited by 66% (67% in Q2). The issue is more significant for transport, logistics or storage with 76% reporting it as a challenge, and 74% of businesses in construction and hospitality sectors.
David Bharier, Head of Research at the British Chambers of Commerce said:
“The first half of 2024 saw better than expected economic and business confidence data. However, throughout summer, major uncertainties have mounted and now many of our indicators have flatlined or ticked down.
“On the domestic front, many businesses are increasingly anxious about the direction of economic policy, and taxation has now become their primary concern. The major escalation in the Middle East conflict will also be a significant factor.
“Investment levels remain the Achilles heel of the UK economy. Despite interest rates starting to fall and inflation easing, most SMEs are still hesitant to invest. Further interest rate cuts in the coming months will help alleviate borrowing costs, but SMEs will need support to fund the skills and technologies that will help boost productivity.
“This month’s Budget will be a critical juncture. Businesses will need to see action on solving the investment puzzle, supporting global trade, particularly with the EU, and easing tax anxiety.”
Shevaun Haviland, Director General of the British Chambers of Commerce said:
“Our survey is a timely reminder of the real challenges businesses across our Chamber network are facing.
“With speculation rife about the tax impact of this month’s crucial Budget, businesses are clearly anxious. They understand the fiscal backdrop the Chancellor is facing and the need for the Government to address public finances. However, that must not be at the expense of investment and growth.
“While most businesses are still expecting increased turnover over the next 12 months, confidence has dipped slightly. Sales and cashflow are also being hit, with the impact on manufacturers particularly concerning.
“Our message to Government is clear. Business stands ready to work in partnership to overcome challenges and help grow the economy. But an effective industrial strategy and a competitive tax landscape are essential to getting Britain booming again.”
Here is what some Cumbrian businesses had to say:
A construction company said:
“Although we are tendering a lot of contracts, contracts are slow to start, some jobs that were about to be awarded have been cancelled. House sales are very slow and the planning system is appalling slow and obstructive. Unless there is a major shakeup the next two years will be very poor.”
A transport business said this:
“We are a small but growing business. We are finding the fact that we have been incorrectly caught in a business rates band, even though we should be below it, difficult to manage from a cashflow perspective. We have put in an appeal but HMRC are very slow to respond so it has negatively affected our cashflow. I believe that business rates assessments need to be done cautiously and carefully as they can really penalise a small business such as ours.”
A manufacturing business said:
“We have tried to employ a year ago and it was difficult. We will be looking again soon but know it will be difficult.”
