Economic performance in Greater Manchester declined sharply in Q1 2024 according to the findings of the latest Quarterly Economic Survey (QES) conducted by Greater Manchester Chamber of Commerce. The headline Greater Manchester Index™, a composite indicator made up of key QES measures, dropped to 3.7 (from 19.3 in Q4 2023). In the last 12 months, the Greater Manchester Index™ has lost 27 points, which is evidence of a general slowdown in the economy.
The survey of nearly 300 businesses held between February 15th and March 8th revealed that sales to UK customers decreased in all three sector groups - construction, manufacturing and services. Manufacturers reported reductions in domestic demand in four continuous quarters. Businesses in this sector, however, reported a marginal increase in their order books. Likewise, quarterly sales by manufacturing businesses to overseas customers and advanced overseas orders also showed slight improvements. Viewed alongside other national indicators, this could indicate that the sector may be turning a corner after several months of low levels of customer demand. Nonetheless, the balances relating to the sector remain below zero, which means that a lot more businesses reported reductions compared with those who reported improvements.
Service sector businesses also reported a decline in quarterly sales and advance orders from domestic customers. Equally concerning was the reduction in overseas demand amongst service sector businesses. Although the services sector ended 2023 in a stronger position than it began the year, the sharp reduction at the beginning of this year does add further risk to what is already a fragile macroeconomic situation. The overall picture that emerges is one of declining economic activity, which is largely attributable to the uncertainty that businesses face.
Consistent with declining demand, cash pressures are building up with a lot more businesses reporting a decline in cash positions relative to previous quarter. Capacity utilisation also declined in this quarter amongst businesses in all three sector groups. In keeping with the generally pessimistic indicators, business confidence declined marginally.
Subrahmaniam Krishnan-Harihara, Deputy Director of Research at Greater Manchester Chamber of Commerce, said: “The Greater Manchester Index™ has now declined in four continuous quarters. The current level is 3.7 is the lowest it has been since Q1 2021. That is surprising and puts in jeopardy the Prime Minister’s ambition to grow the economy. International trade data we have analysed reveals a contrasting picture. While exports of services have improved since the pandemic, exports of goods to both EU and non-EU customers continue to be at levels comparable to 2020 and over 10% lower than they were pre-pandemic. The difficulties businesses face in moving goods across the border, a problem they have faced since Brexit, continues to impact them.
“In Q1 2023, we saw a significant increase in capital investment as more and more businesses were trying to take advantage of the super deduction system. The successor scheme, full expensing, does not seem to have provided the same boost in the current quarter. This is also surprising and could be the result of businesses having clustered investments last year or because of added cashflow pressures more recently.
“The good news in recent months has been around inflation. Headline consumer and producer price inflation rates have eased significantly and although businesses still face higher prices, there is some optimism that prices will not increase further. On the other hand, some businesses are concerned about the oncoming increases to National Living Wage, which they fear may affect cashflow some sectors such as hospitality adversely.
“Other positive developments include the slight increase in retail sales volumes and the sustained improvement in the GfK consumer confidence index. After we anlaysed the QES results for the last quarter in December 2023, we forecast that many businesses face lower growth prospects as they enter 2024. Sadly, that has come to pass. The festive season spending on hospitality and retail were lower than anticipated, which resulted in the UK being in a technical recession. A lot is at stake now. The Prime Minister and the Chancellor must be hoping that recent cuts to National Insurance announced in the March 6th budget give a boost to consumer spending. However, there is still nothing to indicate that a strong increase in public and business investment may come through and therein lies the biggest risk to growth in the UK economy.”
You can view the slides from our most recent Quarterly Economic Survey presentation here.