BCC: Positive economic growth but manufacturing exports slump

Thursday 7 January 2016

The British Chambers of Commerce (BCC) Quarterly Economic Survey shows that most key manufacturing and services balances were weaker this quarter, but manufacturing firms fared far worse.

This has led Britain’s two-tier growth trend to become further entrenched.

Most key balances for the services sector dipped slightly again on the previous quarter, with domestic sales continuing to be the main contributor to overall growth. The sector however continues to remain resilient in the face of global headwinds.

However the manufacturing sector continues to struggle. Domestic and export sales and order balances have now fallen well below their pre-recession levels in 2007, suggesting that the sector is close to stagnation. Firms are looking to increase prices markedly in the next 12 months, but are also thinking about investing more in plant and machinery, suggesting that the sector is keen to make the most of low inflation and low interest rates to improve productivity.

Key findings in the Q4 2015 Quarterly Economic Survey:
• Overall, the results suggest positive economic growth over the next year, albeit at a slower pace, but built mainly off the back of the services sector. The UK recovery continues to face many global challenges
• Most key balances were weaker in Q4 than in Q3 for both the manufacturing and services sectors; the falls in services are in general smaller than the declines in manufacturing
• Export manufacturing balances declined sharply to levels approaching stagnation – export sales declined nine points to +1%, the lowest level since Q3 2009 – while export orders also fell to +1%
• The services sector export sales balance also fell by three points to +15% - the lowest level since 2011
• Domestic balances were stronger than export balances, despite falling. Manufacturing sales balance fell seven points to +13%, while domestic orders were down eight points to +10%. In services, domestic sales balance fell four points to +32%, with orders dropping six points to +23%
• Intentions to increase prices rose markedly in manufacturing, from +8% in Q3 to +19% in Q4. In services however, this fell slightly to +21%
• Both sectors report increased pressures for higher pay settlements
• On a positive note, both sectors report increased intentions to invest in plant and machinery. Manufacturing rose six points to +24%, while the balance for services rose three points to +20%.