Economic performance in Greater Manchester has declined slightly in Q2 2023 according to the findings of the latest Quarterly Economic Survey (QES) conducted by Greater Manchester Chamber of Commerce (GMCC). The headline Greater Manchester Index™, a composite indicator made of key QES measures, decreased to 22.1 (30.3 in Q1 2023).
The survey of nearly 300 businesses held between May 22nd and June 12th revealed that sales to UK customers decreased in all three key sector groups: services, manufacturing and construction. Manufacturing sector businesses were reporting improved demand in Q1 2023 but that appears to have taken a turn for the worse in Q2 2023. Consistent with that decrease in demand, capacity utilisation and cashflow positions amongst manufacturing sector businesses have also fallen. Another worrying development is the downturn in international trade. Businesses in manufacturing reported that export sales and advance orders from overseas customers decreased in this quarter. In the services sector group, export sales increased but advance orders have declined.
The survey results also showed a mixed picture in other important economic indicators such as business investment and business confidence. Businesses in all three sector groups reported that they were optimistic in maintaining their turnover, which indicates that they expect some stability in demand. Optimism that profitability can be maintained, however, has shown marginal decreases, a reflection perhaps of the fact that prices have been put up already and there isn’t scope to put them up further.
In Q1 spending on capital investment projects improved as businesses were trying to take advantage of the super deduction scheme that ended in March. In the latest quarter, business investment on capital projects and training have both declined across all sectors.
Subrahmaniam Krishnan-Harihara, Deputy Director of Research at Greater Manchester Chamber of Commerce, said: “The decrease in the Greater Manchester IndexTM is disappointing but is in line with other economic developments. In Q1, the economic commentary was about the resilience of the UK economy. Resilience is now combined with uncertainty and while a technical recession may be avoided, there are some clear headwinds and a series of challenges for business.”
“Businesses will be concerned that inflation remains stubbornly high. In the 13th consecutive rise, the Bank of England recently set the base rate at 5% - four times what it was a year ago. Although this went against market expectations, the latest inflation figures perhaps gave the Bank no choice but to effect a 0.5 percentage points increase. UK inflation has proved hard to tame. Contrary to early expectations that inflation would be transitory, it is evident that inflation is persistent although it has come down from peak levels of around 11%.
“Another theme coming out of latest QES results is one of apparent contradictions. Inflation is very high and yet, consumer confidence and consumer spending both remain strong. Spending on hospitality is particularly strong at the moment and perhaps a partial explanation behind the 7.6% inflation we are seeing in the hotels, restaurants and cafes sub-sector. That is higher than ‘core’ inflation. Higher mortgage interest rates haven’t had a dramatic impact on house sales and in fact, house prices increased by 3.5% in the 12 months to April 2023.
“That UK debt is at 100% of GDP and the need to maintain tight fiscal policy will possibly see public spending reined in, this could be of particular concern in Greater Manchester and the North West. But with the Energy Guarantee Scheme ending this week, government borrowing is expected to decrease in the coming months.
“In summary, there are some bright spots and an equal number of contradictory indicators. How the interplay between these myriad factors plays out will determine the economic trajectory for the next year. Greater Manchester’s businesses will probably view the data with a mix of cautious optimism and the hope that inflation can be tamed without damaging economic performance.”