British Chambers of Commerce: Turnover Confidence Improves But Investment Still Struggling

Nearly half of firms expect turnover to rise over the next 12 months but investment intentions are stuck at a post-pandemic low.

The latest British Chambers of Commerce (BCC) Quarterly Economic Survey also shows that, with the Budget just weeks away, inflation remains firms' top concern, followed by taxation.  

The key findings, from the UK's largest independent business sentiment survey, are:  

• Nearly half of surveyed firms (47%) said they expect improved turnover over the next 12 months, up from 44% in Q2. While 20% expect a decline. 

• But long-term trends remain stuck. Only 17% of firms plan to increase investment in the next three months, unchanged from Q2 and still at a post pandemic low. 

• Less than a third (29%) of firms reported increased sales over the previous three months, while 25% reported a decrease. 

• Inflation remains the top concern for businesses, cited by 60% of firms (down from 66% in Q2) followed by taxation (52%) 

The survey was carried out by the BCC Insights Unit and the UK-wide Chamber Network, with the fieldwork conducted between 18 August and 15 September. Over 4,300 businesses across the UK (92% SMEs) responded online.  

Business confidence indicators tick up 

Business confidence improved slightly in Q3, with 47% of firms saying they expect their turnover to improve in the next 12 months (compared with 44% in Q2). The proportion of firms expecting decreased turnover easedto 20% in Q3 (23% in Q2). Meanwhile, 33% said they expected no change. 

Hospitality is the sector under the most pressure. Only 39% said they expected increased turnover, but this isstill an increase from Q2 (31%). Around a quarter (26%) of hospitality firms expect a decrease.  

Cash flow pressures have also eased, although they remain negative overall, with 22% reporting an increase in Q3, against 29% a decrease, and 49% remaining constant.  

Investment intentions remain stuck in a rut

As firms battle the cost of doing business, investment intentions remain stuck in a deep rut. Fewer than one in five (17%) responding businesses said they planned to increase investment in plant, machinery or equipment over the next three months. This is the same figure as Q2, and it remains a post pandemic low. Just under a quarter (22%) of firms said they planned to cut back on investment, while the majority of responding businesses (62%) said their plans remained unchanged. 

Investment intentions vary across different sectors. A third of hospitality businesses (32%) reported they'dscaled back investment plans, while only 20% said they were planning to increase levels. The majority (48%) said investment was likely to remain the same. Meanwhile, only 14% of firms in both construction and transport are planning to invest more over the coming months. In both sectors, 23% are planning a reduction, 63% said investment levels will remain the same  

Sales indicators show early signs of stabilising 

The percentage of businesses reporting increased domestic sales in Q3 held steady at 29%. Just less than half (46%) reported no change, and a quarter (25%) said they had seen a decrease in sales. Sectoral breakdowns show the hospitality sector experienced the strongest performance, with 31% of firms reporting a sales boost, while the retail was the sector struggling the most, with only 26% reporting increased sales. 

Inflation worries ease but they remain the top concern 

With the CPI rate increasing over the summer, inflation remains the top concern for businesses. However, concern did ease slightly in Q3, with inflation cited by 60% (down from 66% in Q2). Half of firms (52%) cited taxation as a worry.  

Price rise expectations among firms also remain elevated, despite some quarter-on-quarter easing. The proportion of business forecasting price rises for customers in the next three months sits at 43% in Q3 (compared with 48% in Q2). The majority of firms (54%) said they expect to hold their prices, and only 3% are planning a cut. 

Labour costs remain far and away the main price pressure, an issue cited by 69% of businesses. This was felt most acutely by firms in the hospitality sector (78%). Utility costs continue to be a price pressure for over half of firms (53%). Meanwhile, with the Middle East conflict continuing, 86% of firms in the transport and logistics sector highlight fuel costs as a price pressure. 

What businesses said:  

Far too much taxation. Running a business is very hard it feels like death by a thousand cuts.

Small professional services firm in Birmingham 

Due to sustained increases in raw material costs, labour expenses, government regulatory requirements, and shipping charges, we are now operating at the absolute limit of what the business can absorb. 

Manufacturer in the West of England 

It is difficult to invest in the business with the current economic uncertainty and no indication when the economy will see real growth. 

Professional services firm in Kent 

The running costs to simply turn the light on these days is shocking, we are keeping our head above water, but the rise in business rates, NI and others which the government implemented have not done any favours to SMEs, we are meant to be the life blood of the economy, yet are the ones who are suffering. 

Small manufacturing firm in Shropshire 

Fuel prices and cost to employ staff is the biggest burden 

Micro logistics firm in Cambridgeshire  

David Bharier, Deputy Director Economics and Insight, at the British Chambers of Commerce said:  

"Our quarterly economic survey points to an economy stuck in low gear. Most firms are reporting no improvement across almost every indicator we track. 

"It's a positive that the decline of the preceding quarters hasn't continued, and turnover confidence has seen a slight bounce. But the underlying trend still points to flatlining, with just 17% of firms increasing their investment, a post-pandemic low.&bsp;

"There is also a big imbalance beneath the headline. Larger firms are driving any improvements to indicators, while the smallest businesses have seen sales and cash flow fall further. Hospitality remains the sector under the most pressure. 

"Firms are being held back by two constraints. Global volatility is driving up prices and pushing firms to defer investment decisions, while the underlying cost base continues to rise, particularly around employment. Our cost stack calculator shows domestic policy-driven costs alone have risen by more than 70% in the past decade for a typical SME. 

"As the Chancellor finalises the Budget, every major measure should be put through our Growth Delivery Test: what will it get firms to do that they aren't doing now?" 

ENDS