UK’s business confidence and conditions saw a slight improvement in the second quarter (Q2) of 2024, though from a very low base, according to the latest Quarterly Economic Survey from the British Chambers of Commerce (BCC). The survey revealed that 58 per cent of firms expect an increase in turnover over the next year, compared to 56 per cent in Q1. In contrast, 29 per cent anticipate no change, and only 13 per cent foresee a decline.

About 38 per cent of firms reported an increase in domestic sales over the past three months, up from 36 per cent in Q1. Meanwhile, 43 per cent of businesses reported no change, and 20 per cent experienced a decrease. Sectoral differences were noted, with 37 per cent of manufacturers reporting a boost in sales, compared to only 33 per cent of business-to-consumer businesses, such as retail.

With inflation easing towards the target, fewer firms (39 per cent compared to 46 per cent in Q1) expect to raise their prices in the coming months. However, despite these improved trading conditions, most firms are still not increasing investment. Labour costs remain the primary cost pressure, with 67 per cent of firms citing this issue, down slightly from 68 per cent in Q1, as per the survey.

There was also an uptick in firms experiencing increased cash flow, rising to 28 per cent from 26 per cent in Q1. Meanwhile, 47 per cent reported no change in cash flow, and 24 per cent reported a decrease.

Profitability confidence also rose, with 51 per cent of companies expecting profits to increase in the next year, compared to 48 per cent in Q1. In contrast, 32 per cent expect no change, and 17 per cent believe their profits will fall.

While inflation remains the biggest external worry among businesses, concern levels have significantly decreased. Approximately 49 per cent of firms are more concerned about inflation than in the last quarter (58 per cent in Q1), a level of concern last seen in 2021 and significantly lower than the 84 per cent reported in Q2 2022, at the peak of the inflation crisis.

Additionally, 39 per cent of respondents are concerned about competition, and 36 per cent about tax. With an interest rate cut likely in the coming months, the percentage of firms raising the cost of borrowing as an issue remains relatively stable at 34 per cent in Q2, compared to 35 per cent in Q1.

Despite the boost in business confidence and conditions, investment levels continue to struggle. Only 25 per cent of firms reported an increase in investment, compared to 24 per cent in Q1. Meanwhile, 61 per cent said investment levels had remained the same, and 14 per cent reported a decrease.

Sectoral disparities in investment levels were noted, with 42 per cent of transport and logistics firms increasing investment, compared to just 19 per cent of retail companies.

David Bharier, head of research at the British Chambers of Commerce, said: “The latest results from our Quarterly Economic Survey show that both business conditions and business confidence have improved, albeit from a relatively low base. The last four years have seen SMEs deal with one crisis after the other, from Covid lockdowns to supply chain breakdowns and new trade barriers with the EU. As some of these crises have ebbed, more SMEs are regaining confidence and reporting increased sales and cash flow. 

“The data also show that concern about inflation among businesses has dropped to levels last seen in 2021 as fewer firms expect to raise prices. A Bank rate cut later this year will help bring down borrowing costs.”

Fibre2Fashion News Desk (DP)