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The Actuary The magazine of the Institute & Faculty of Actuaries

UK firms expect growth despite inflation fears

Businesses in both the services and manufacturing sectors expect continued expansion in 2017, although inflationary pressure remains a concern according to the British Chambers of Commerce’s (BCC) Quarterly Economic Survey.

Firms expecting 'continued growth' ©Shutterstock
Firms expecting 'continued growth' ©Shutterstock

It showed that more service sector firms anticipate growth than they did just after the EU referendum in June, although at a lower level than before the vote to leave, with sales increasing marginally in the latest quarter in comparison to the previous one.

However the number of service firms expecting the price of their services to increase is at the highest it has been since the first quarter of 2011, while the balance of manufacturing firms expecting an increase in their prices is the highest on record.

BCC director general, Dr Adam Marshall, 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.

“Overall, our findings suggest growth will continue in 2017, albeit at a more modest pace. The government must act strongly this year to support investment and improve the business environment – both of which are crucial to boosting business confidence, and therefore further growth.”

The BCC survey involves gathering responses from 7,250 manufacturing and service companies in the private sector, to determine their current and expected future performance.

It shows that both types of firms are positive that their turnover will increase going forward, with the balance of service providers’ confidence increasing from +28% in the previous quarter to +35%, and rising from +36% to +43% for manufacturers.

While confidence in profitability remained static at +22% for manufacturers, it rose from +15% to +21% in the services sector, however profit and turnover positivity are still relatively low compared to results from the past three years.

BCC head of economics, Suren Thiru, said: “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.

“While growth is likely to have remained on trend in the quarter, the UK’s growth prospects in the near-term are expected to be more subdued, weighed down by rising inflation and the uncertainty surrounding Brexit.”