The data revealed in the British Chambers of Commerce Quarterly Economic Survey shows a significant decline in key economic indicators, with weakening structural business conditions and confidence a cause for concern.
According to the report, fewer businesses are reporting increased sales, with only 33 per cent of firms reporting increased domestic sales, down from 41 per cent last quarter, and 84 per cent of firms said measures for inflation are of great concern.
The survey of over 5,200 firms — 92 per cent of which are SMEs — reveals there have been significant declines in indicators of business sales, cash flow, and profit expectations, and all indicators of business conditions and confidence have fallen significantly from Q2 positions.
More businesses are now seeing their cash flow decreasing, with one in three (32 per cent) reporting reduced cash flow over the last three months.
Less than half (44 per cent) of firms expect their turnover to increase over the next 12 months, while 25 per cent expect a decrease.
Profitability confidence has dropped to an even lower level, with only one in three (33 per cent) businesses believing their profits will increase over the coming year, while 39 per cent now expect a decrease — the lowest level since Q4 2020 at the height of the COVID crisis.
Business activity has also taken a hit, with only 33 per cent of firms reporting an increase in domestic sales over the past three months, a sharp decline from the Q2 level of 41 per cent.
Nearly a quarter of firms reported a decrease in sales.
The outlook for the retail and wholesale sector is even more concerning, with the sector now in its second quarter of negative territory and far more businesses reporting a decrease in sales rather than an increase.
Hospitability is also struggling, with three-quarters (71 per cent) of hospitality businesses reporting they are operating below capacity.
The percentage of firms expecting their prices to rise over the coming months (62 per cent) remains close to last quarter’s record high, with 84 per cent of firms also citing inflation as a growing concern to their business.
David Bharier, head of research at the British Chambers of Commerce (BCC), said this quarter’s results point to a significant decline in business confidence, with a clear shift downwards in many of the key indicators we track.
“Every sector has seen a falling proportion of firms reporting increased domestic sales, with the retail and wholesale sector particularly affected,” he said
“Diminishing sales coupled with soaring inflation is a toxic mix, and many firms are no longer looking to the future with optimism. Profitability and turnover confidence for the next year have dipped significantly since last quarter. Both measures are heading towards levels not seen since the onset of the COVID crisis.
“While the subsequent energy announcement will have alleviated immediate pressure on firms’ energy bills, confidence will have taken a further hit following the market reaction to the mini-budget.
“Many firms are caught in the pincer movement of soaring inflation and rising interest rates. The devaluation of the pound has also added a huge cost base for businesses reliant on imports.
“Businesses now desperately need to see economic stability in order to rebuild the confidence to invest.”
Director-general of the British Chambers of Commerce, Shevaun Haviland, said the findings paint a worrying picture of the state of affairs at many UK firms.
“Almost every key business indicator is trending downwards — sounding alarm bells across all sectors and regions,” she said.
“Sales and cash flow are down, firms are operating below capacity, and the number of businesses expecting to see their profits increase is falling.
“Unsurprisingly, inflation remains the top external factor of concern for businesses. Some firms are telling us that they have been forced to cancel otherwise viable projects, due to soaring costs.
“In addition to the long-term structural challenges facing businesses, events over the last few weeks will have added to firms’ worries. The current volatility in the financial and currency markets must be speedily addressed to return stability to the economy and give business some certainty to plan.
“We have welcomed the move from government to reverse the National Insurance contributions (NICs) increase, which will put money back into people’s pockets immediately; and the Annual Investment Allowance (AIA) now permanently set at £1 million to help incentivise growth.
“The six months energy package for businesses is a step in the right direction, but we need a longer-term plan if the government is serious about helping businesses during this energy crisis. Time is of the essence.
“The government must now rapidly present more detail on its fiscal policies and supply-side reforms, particularly at a time when businesses are faced with rising interest rates and high inflation.
“Businesses understand the economy will not fix itself overnight, but they do expect a long-term plan. We urge the government to provide more certainty by bringing forward the publication of their fiscal plan. The sooner they do this, the sooner markets and businesses will understand what the long journey to stability will look like.”
