Quarterly Economic Survey Indicates Continued Lincolnshire Growth - Lincolnshire Chamber of Commerce and Industry, UK

The Lincolnshire Chamber of Commerce and the Lincolnshire County Council released the results from the Quarter 2 2010 Lincolnshire Area of the British Chambers of Commerce Quarterly Economic Survey (QES), and they suggest that Lincolnshire’s economy saw further growth, building on the improvement earlier in the year.

Thank you to the 400 Lincolnshire businesses who responded again this quarter, and our encouraging results show that there have been improvements in both sectors. Despite these results, underlying weaknesses in the national economy remain, which cannot be ignored if we are to avoid a relapse into recession. Slow growth in the service sector is a serious concern, and more specifically, a large percentage of our manufacturers are reporting that the cost of raw materials is increasing, adding to price pressures, but there is a more positive outlook from our businesses this quarter.

Key points from the service sector in the Lincolnshire Q2 QES:

• An increase in both domestic and overseas sales and orders.
• Workforces have remained constant, but are expected to decrease over the next quarter with a 12% increase on attempts being made to recruit staff this quarter, mainly for part-time work. Those that did recruit found it difficult to find suitable skilled staff (15%).
• Cashflows have generally improved, with an additional 10% of businesses saying cashflows have improved, and 11% fewer businesses saying cashflows have worsened.
• Investment in both training and plant/machinery/equipment has increased.
• Business confidence has increased this quarter, with 40% of businesses asked saying that turnover will improve (a 12% increase) and 30% of businesses saying that profitability will improve (a 9% increase) over the next 12 months.
• Approximately 60% of the businesses are operating below full capacity, but there has been a 2% increase in those operating at full capacity.
• Prices are expected to remain the same over the next quarter, with pressures to do this stemming from raw material prices, finance costs and other overheads.
• Red tape, legislation and competition are more of a concern to our businesses in the service sector this quarter.
• All future growth factors have decreased this quarter (by a 2% average), but transport infrastructure, increasing skills, and increasing productivity are the most important this quarter.

Key points from the manufacturing sector in the Lincolnshire Q2 QES:

• Domestic and overseas sales and orders have increased by almost 10% from last quarter.
• Almost 6% of businesses say their workforces have increased, and 30% expect their workforces to remain the same over the next quarter. Attempts have been made by 32% of businesses to recruit staff, 28% of these recruiting for part-time work, and there has been a 5% increase in difficulties with finding professional, managerial and clerical staff.
• 39% of businesses say their cashflows have increased.
• Investment in both training and plant/machinery/equipment has increased by about 8%.
• Business confidence has generally increased, with businesses believing that both turnover (which has increased by 18%) and profitability (which has increased by 5%) will improve over the next 12 months.
• There has been a slight increase of 5% in businesses operating at full capacity.
• Prices are expected to remain the same over the next quarter, but pressures to raise prices have increased by 16% regarding raw material prices. Other overheads and pay settlements are also adding pressure to businesses to raise prices.
• Red tape, inflation and legislation are of more concern this quarter to manufacturing businesses.
• Factors important to future growth in Lincolnshire have all decreased this quarter, but increasing skills, transport infrastructure and increasing productivity are still considered the most important.

This quarter, we also asked businesses about the skills gaps that their current employees have now and those they need to meet their current and future business objectives. The results follow:

Services:

• 22% of businesses said that skills gaps do exist in meeting their current objectives (an increase of 3%); 21% said that they exist in meeting their future objectives (a decrease of 4%).
• 65% said that gaps don’t exist in meeting their current objectives (a decrease of 7%); 64% said that they didn’t exist in meeting their future objectives (a decrease of only 1%).

Manufacturing

• 20% of businesses said that skills gaps do exist in meeting their current objectives (no change); 30% said that they exist in meeting their future objectives (a decrease of 5%).
• 70% said that gaps don’t exist in meeting their current objectives (a decrease of 2%); 64% said that they didn’t exist in meeting their future objectives (an increase of 10%).

Nationally:

• Manufacturing domestic sales rose in Q2, to a level not seen since the last quarter of 2007. The service sector’s domestic sales also rose.
• Manufacturing export sales increased its highest level since Q3 2006 and an indication that exporters are benefiting from a more competitive exchange rate. The service sector’s export balances recorded modest increases and they remain weak by historical standards.
• Employment in manufacturing saw a big improvement in Q2. Manufacturing employment expectations also increased. Employment in services edged up, while employment expectations also rose.
• One of the most worrying aspects of this quarter’s results is the pressure manufacturing firms are facing to increase prices, driven by the cost of raw materials. The balance of manufacturers reporting pressure to raise their prices surged in Q2, to the highest figure this survey has seen since Q3 2008.
• Confidence improved among manufacturers in Q2. However, the service sector’s confidence measures weakened – a disappointing setback at this early stage of the recovery.
• Manufacturing’s cash flow improved, and services cash flow also improved, but remains negative.

Commenting on these results, Simon Beardsley, Chief Executive of the Lincolnshire Chamber of Commerce, said, “On the whole these results are positive, especially in manufacturing, and they should offer encouragement that the UK’s recovery remains on the right track.

“We still have concerns about sluggish growth in the service sector, which emphasises why the Government must continue to promote the best possible business environment, in order to help companies invest and grow. Furthermore, with around 80% of manufacturers reporting that they are under pressure to increase prices, there is potentially a big issue bubbling under the surface.

“With very austere times ahead, no one should kid themselves into thinking that the UK’s economic recovery is totally secure. There will need to be an unwavering focus on ensuring business is able to deliver growth, create jobs, and drive a lasting recovery. Interest rates will have to stay low for longer, burdensome new employment red tape must be blocked, and we will have to generate growth across all regions of the country.”