Confidence among East Midlands businesses is in freefall, according to new research, as the cost of doing business continues to head upwards.
With inflation at a 40 year high of 9.1 per cent and the economy running on empty towards likely recession, the latest East Midlands Chamber business leader survey suggests no signs of let-up.
The Quarterly Economic Survey found less than one in 10 companies expected a rise in profits this year, down from a third at the start of 2022.
While the number that expect turnover to go up has dropped from 62 per cent to 42 per cent over the last three months.
Some 322 businesses across Derbyshire, Leicestershire and Nottinghamshire responded to the quarterly survey between May 16 and June 10 – and said confidence has been hit by weakening overseas sales and orders, alongside a flat UK market.
Problems were driven by high inflation and sky high energy costs – partly due to the war in Ukraine and sanctions on Russia – along with rises in the cost of raw materials, people and fuel.
Those problems are working together to slow business investment, which the chamber said will crucial to driving the productivity gains that can help to beat inflation.
Chris Hobson, director of policy and external affairs at the chamber said: “Issues with supply chains – which have been readjusting since the pandemic impact and surging demand as we emerge into this post-pandemic period – alongside changes in trading conditions resulting from the UK leaving the EU and, more recently, the impact on prices following the Russian invasion of Ukraine, have all combined to hit business confidence and activity levels.
“This dent to confidence has knock-on effects on investment, with intentions to invest in training (down 3 per cent quarter-on-quarter) and equipment (down 6 per cent) both being scaled back, and at a time where 40 per cent of businesses report operating at full capacity – a record for the survey in recent times.
“The underlying concern here is, for an economy to grow, businesses need to invest.
“A struggling economy isn't being driven by a lack of demand, but rather a hindered ability to respond to that demand. This in turn puts further pressure on prices, risking a situation that continues to deteriorate as the months progress.”
The survey findings suggested while UK sales flatlined between the first and second quarters, overseas sales were down, recruitment was getting harder while two-thirds of businesses expect to put prices up over the next three month.
The chamber said: “Business confidence nosedived, with the proportion of businesses expecting profitability to increase dropping by 23 per cent and those anticipating improved turnover falling by 20 per cent.”
Mr Hobson said the Government had to urgently address the financial challenges faced by businesses that will eventually be passed on to consumers.
He said: “Businesses need an injection of confidence to enhance their investment plans and respond to the challenges they're facing.
“Given that many of these issues are external, this is easier said than done, but there are levers the Government can pull to support business.
“On fuel, it should act to further cut duty and reduce VAT applied to fuel purchases, while the HMRC mileage rate should be increased from 45p per mile to 60p.
“Small businesses should be offered greater grant support on fuel bills, similar to that received by consumers, and those struggling with repayments linked to coronavirus-associated support schemes should be given more leeway for repayments to be made.
“Finally, incentives should be given to businesses looking to invest in their people, similar to schemes that already exist for capital investment, which themselves should be extended.
“These are not usual times, but the current state of affairs is also not permanent.
“It is right that Government should act to introduce special measures at a time when the economy needs it, with the knowledge that once there are calmer waters ahead, businesses will continue on their growth trajectories and drive a competitive UK economy.”