UK growth has carried through to the first quarter of 2017, it would appear. The UK’s manufacturing and services sectors are both surging, with increases in domestic and export sales.
The British Chambers of Commerce (BCC) latest quarterly survey out today shows the manufacturing sector performing strongly in the first quarter of the year, particularly in the exports market, with the number of firms reporting improved sales and orders higher than in previous quarters.
Although the performance of the services sector has not returned to historic trend levels, it is improving from its decline in the two quarters immediately following the UK’s European Union membership referendum.
However, the rising cost of overheads and raw materials are presenting as a risk to growth in the medium term.
This chimes with Verdict’s Brexit Sentiment Tracker, which shows that UK businesses and markets remain upbeat heading into negotiations with the EU.
Rising inflation could put a dampener on things
The BCC’s survey results found that businesses are though feeling inflationary pressures.
Adam Marshall, director general of the BCC, said:
The rise in inflation seen since last year’s EU referendum is the biggest immediate pressure facing most firms.
While manufacturers have enjoyed a good quarter, they are facing higher costs at the factory gates, which increasingly translates into companies having to raise their own prices. With inflation already above the Bank of England’s target, this squeeze on firms looks set to continue in the medium term.
The percentage of manufacturers reporting raw materials as the key driver of increased prices is at the highest since the fourth quarter of 2011, and in both the manufacturing and services sectors a significant proportion of firms anticipate having to raise their own prices over the next three months.
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The findings indicate that while confidence in turnover and profitability is improving, investment intentions remain low.
More businesses have increased their employment expectations, although both sectors are being hampered by recruitment difficulties.
The percentage of businesses in both sectors trying to recruit grew in the last quarter, standing at 86 percent in manufacturing (up from 77 percent in the previous quarter) and 59 percent in services (up from 53 percent).
However, both sectors continue to experience high levels of recruitment difficulties, with those reporting difficulties standing at 74 percent in manufacturing (previously 76 percent) and growing to 58 percent in services (previously 51 percent)
Suren Thiru, head of economics at the BCC, said:
Manufacturers’ export sales are at their highest levels in recent years, with the decline in sterling and an improving outlook for the global economy helping a number of firms who export.
However, if the sector is to sustain this growth in the long-term, there must be action on the difficulties facing it, including chronic under investment in the UK’s infrastructure and shortages in the labour market.