The economic outlook has dramatically weakened in the last few weeks according to the findings of the latest Quarterly Economic Survey (QES) conducted by Greater Manchester Chamber of Commerce. The Greater Manchester Index™, a composite indicator made of key QES measures, declined by 18 points from the previous quarter and now stands at 13.5. After hovering in the early 30s for five quarters, this presents a sharp quarterly decline and is a clear indication that the economy is stalling on the back of uncertainty over consumer spending and high energy prices.
The survey of nearly 300 businesses held between August 22nd to September 12th revealed that sales to UK customers decreased considerably. Only manufacturing seemed to show a small improvement. However, sales in the manufacturing sector decreased dramatically in Q2 and so any increase in this quarterly could be the result of a “low base” effect. Within the services sector, both B2B and B2C businesses have suffered a quarterly decline. Export sales also show a decline in this quarter. The low value of the pound does not seem to have boosted exports yet.
Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, said: “Inflation and uncertainty around the ability of households to sustain consumer spending are having a clear impact on economic growth and business sentiment. In Q2, we saw that businesses were beginning to get very worried about the wider economic impact of higher energy and commodity prices. That has taken a further downward turn in this quarter. The sharp decline in demand for B2C services is clear evidence that consumers are reining in expenditure. Businesses also appear to be cutting down on discretionary spend, which seems to have affected B2B services.
“Of particular concern is the reported reduction in cash positions. Since the pandemic, cash flow positions never recovered to the extent demand did. In the immediate aftermath of the pandemic, there were lots of pressures on businesses. That has only worsened now. The smaller businesses with less than 50 employees are most under stress according to this quarter’s data. We have heard from our members in the hospitality sector that their energy costs have doubled or even tripled in the last few months. That is going to put additional pressure.”
The combination of weak cash position and poor demand outlook means business confidence has taken a hit. On the ‘profitability confidence’, which measures the optimism that businesses can maintain their profits or margins, is in negative territory meaning a lot more businesses expect their margins to decline compared with those that expect their margins to stay the same or improve.
Subrahmaniam added “The loss of confidence and weakening in other QES measures does not bode well for business investment. The Prime Minister and the Chancellor exuded a lot of optimism over the Growth Plan announced last Friday. The latest QES data shows that the gap between their optimism and the reality that businesses face ‘on the ground’ is stark and widening rapidly. The focus from government must be on providing certainty.”