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WHAT'S NEWS IN CORNWALL

Chambers’ Quarterly Economic Survey points to short-term stagnation in the UK

Cornwall data shows a little more confidence than elsewhere in UK, but overall figures still make gloomy reading. 

• Quarterly Economic Survey (QES) results for the UK point to a further deterioration in the economic situation, with signs of stagnation in the first quarter of 2012.
• In Cornwall: Sue Hook“with confidence weakening, sales growth slowing and costs continuing to rise, government needs to provide practical help. In Cornwall we are spending enormous amounts of taxpayers’ money on mentoring and consultancy to grow small businesses, whilst at the same time adding to business rates, National Insurance and even car parking charges. Actions must begin to match rhetoric”.
• Nationally: John Longworth:“A new recession is not a foregone conclusion. However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing eurozone crisis.”

The British Chambers of Commerce’s new Quarterly Economic Survey (QES) released today (Tuesday) shows concerning results for Q4 2011, and points to a period of stagnation in early 2012. The new survey, comprising some 7,850 responses from businesses across the UK, shows declines in most indicators across both manufacturing and services in the last quarter. While measures for the previous three months indicate minimal growth, expectations for the coming three months have significantly weakened.

As per previous trends, Cornwall figures are a little better than elsewhere but all indicators have slipped significantly over the past 12 months.

The results do not indicate a recession, and are still better than those seen in the worst phase of the last downturn. However, they are a cause for concern, and show that the improvements in 2010 and early 2011 have largely been cancelled out. The worsening international situation, and the growing risks facing the eurozone, presents challenges for UK exporters and business confidence as a whole.

In Cornwall:

Domestic orders

• The majority (67%) reported that UK sales have remained the same or increased in Q4 2011. However, this is down from 76% a year earlier.
• Similarly a majority (51%) report that UK orders have remained constant or increased over the same period. However, this is down from 68% a year earlier.

Employment

• In the face of challenging conditions, Cornwall’s businesses continue to invest in employees. 77% intend to maintain or increase investment in training (up from 73% in the same period a year ago). 83% have maintained or increased the size of their workforce (again, up on the same period a year ago).
• However indicators suggest that most are maintaining the size of their workforce, rather than creating new jobs

Business confidence and investment

• The number of businesses expecting to maintain or grow profitability over the next 12 months fell significantly compared to the same period last year, despite a similar number expecting to maintain or grow turnover.
• This reflects a significant change in business concerns, with inflation and taxation a worry for the majority.

Commenting on the figures, Sue Hook, President of the Cornwall Chamber of Commerce said:

“Whilst not entirely doom and gloom, these figures demonstrate how hard it is to drive and maintain a small business these days

“Our members are working really hard to move forward. The figures on investment in employees show that for many running a small business, profit margins are not the only concern. This is also reflected in unemployment figures compared with elsewhere in the UK

“However, without profit a business cannot continue – we are not employment charities

“In Cornwall we hear a lot of talk about ‘encouraging small businesses’ and make enormous investments in ‘business support’. Yet at the same time we add to business rates, National Insurance and even car parking charges. All of these things have a detrimental effect on the viability and potential growth of the private sector in Cornwall. Actions must begin to match rhetoric”. 

In the UK:

Domestic orders

• Domestic balances for Q4 2011 are weak, and most have recorded falls. Manufacturing balances for home deliveries declined over the past three months (falling three points to 0%), and also for forward-looking orders (falling nine points to -12%). Both balances are at the lowest level since Q3 2009.
• In the service sector, the balance of home deliveries rose two points, still a weak level of +2%, and the home orders balance dropped six points to -9%, a level seen last in Q3 2009.

Exports

• Balances recording exporting activity by manufacturers recorded declines in Q4 2011, but improved slightly in services. In services both balances rose, with export sales rising six points to +10%, and export orders rising 1 point to -1%.
• The balance for export sales by manufacturers over the past three months saw a fall by six points to +12%. Asked about future orders, the picture was similar. The manufacturing balance for future export orders declined nine points to +5%. Again, similar sales and orders levels were last seen in Q3 2009.

Employment

• Figures for the last three months showed a fall in the balance of manufacturers and service sector firms expanding their workforce.
• Firms in both sectors do not seem optimistic about future recruitment. In manufacturing the employment expectations balance plummeted 18 points to -8%, and in services falling four points to +2%.

Business confidence & investment

• Confidence among businesses fell in the last quarter. The balance measuring manufacturers’ confidence in turnover fell by 19 points (to +14%), and in profitability the balance was down seven points to +9%.
• In the service sector, the turnover confidence balance fell five points to 19%, and profitability confidence fell eight points to +2%, the worst level since Q2 2009.
• The balances measuring manufacturers’ investment also fell in the last quarter. Plans by manufacturers to invest in both plant & machinery and training fell. In the service sector there was a slight increase in planned investment in plant & machinery, though the level is still weak at +2%, but a fall in plans to invest in training.

Commenting on the results, John Longworth, Director General of the BCC, said:

“The results of our latest survey are a cause for concern and point towards stagnation in the first quarter of this year. Many of the balancesare now at levels last seen in the third quarter of 2009, meaning improvements seen in the last two years have largely been cancelled out.

“A new recession is not a foregone conclusion. However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing eurozone crisis.

“A slowdown across the eurozone is inevitable, but Britain need not suffer a similar fate. We simply cannot afford to compromise on economic performance. The UK does have the potential to recover and make its way in the world. We have the talent, the energy, and the enterprise. All we need is an environment that puts business first. We must recognise that business is good for Britain. Boosting growth in our businesses will boost the economy and let Britain lead on the international stage.

“Ministers need to move faster on promises made in the Chancellor's Autumn Statement. Measures to improve the flow of credit to businesses, reforms of our complex planning system, and investment in infrastructure projects are all needed now. If the implementation of the credit easing programme takes much longer, the economy would be better served by the creation of a full blown SME bank. On infrastructure, the government must bite the bullet and move ahead on high speed rail, airport expansion, toll roads and liberalisation of the planning system. Britain's economy is at a critical stage - and now is not the time to shy away from the radical decisions needed to inspire confidence and increased investment for years to come.”

David Kern, BCC Chief Economist, said:

"The results point to a worsening in the economic situation, with signs that the UK recovery is stalling. The survey shows stagnation in manufacturing and minimal growth in services in Q4 2011. The forward-looking home order balances moved deeper into negative territory, and highlight risks of declines in domestic activity early in the New Year. We believe UK GDP will stagnate overall until mid-2012, with one quarter very likely in negative territory. 

“A fall in employment expectations points to risks of rising unemployment over the next year. We are predicting an increase in the UK jobless total to 2.77 million by the end of 2012. Recession is still avoidable, but risks of a setback have increased. Most export balances are still positive. But the worsening international situation and the growing risks facing the eurozone will cause UK exporters difficulty.

“With confidence falling, every effort must be made to avert recession. We expect the MPC to announce a £50 billion increase in the QE programme, to £325 billion, early in 2012. But QE will not achieve its full potential in supporting growth unless supplemented by the early introduction of a sizable and effective credit-easing programme. As well as reallocating spending priorities, the government must act urgently to cut red tape and contain increases in business rates."

Posted 10th Jan 2012  by member Cornwall Chamber of Commerce & Industry