Confidence for 2017 remains high despite inflation woes

Businesses have kicked off 2017 in rude health, but inflationary pressures present a headache for the coming months, a major report today warns.

The slide in sterling may be helping some manufacturers, but inflation remains a concern. Picture: Jeremy Stockton

The latest economic survey from the British Chambers of Commerce (BCC) shows the uptick in the third quarter in the manufacturing sector was sustained in the final three months of 2016, while more service sector firms were expecting growth than in the previous report.

Growth in domestic sales and orders in Britain’s powerhouse services sector rebounded slightly in the fourth quarter, although they have not yet returned to historic levels. The slide in sterling may be benefiting some manufacturers, the BCC noted, with export sales and orders remaining at the increased levels seen in the third quarter.

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Confidence highest among companies based in Scotland

The survey also indicates that, having fallen in Q3, confidence in future turnover, hiring expectations and investment in plant and machinery have improved for both manufacturing and services businesses in the latest period.

However, the BCC found that firms in both sectors, particularly in manufacturing, are facing pressure to raise prices, chiefly as a result of the cost of raw materials and other overheads.

The survey is one of the UK’s most authoritative private sector snapshots – based on 7,250 responses from companies during the final weeks of 2016.

Adam Marshall, director-general of the BCC, said: “As we start 2017, businesses are continuing to trade through the uncertainty, and are looking to seize opportunities as they arise. Our findings suggest that business communities across the UK remain resilient, and many firms are expecting continued growth in the months ahead.

“Inflation has emerged in our survey as a rising concern for many businesses. Both manufacturing and services firms say they are under pressure, particularly from the rising cost of inputs, which is squeezing margins and may weaken future investment.”

Suren Thiru, the body’s head of economics, added: “Having slowed significantly in the previous quarter, the services sector has rebounded, although it’s not yet back to levels seen at the start of the year. Nonetheless, the service sector is likely to have been the key driver of growth in the quarter.”

Research published earlier this week by Lloyds Banking Group suggested that confidence for 2017 was strongest among businesses based north of the Border.