The economic outlook and confidence among businesses in Coventry and Warwickshire has dropped for the first time in 2021 – despite most Covid-19 restrictions being removed.
The Coventry and Warwickshire Chamber of Commerce’s third Quarterly Economic Survey (QES) of the year showed that firms across the region are less optimistic than they were just three months ago. Manufacturing, the survey showed, has been hit harder than the service sector.
The survey, which is delivered in partnership with Prime Accountants Group, is analysed by the Economy & Skills Group at Warwickshire County Council. Its analysis uses a similar score to the national Markits Purchasing Managers Index (PMI) where 50 is the balance and anything above means the majority feel positive and anything below means the reverse.
As well as giving a barometer for the local economy, the results are fed into the British Chambers of Commerce’s national QES and send a strong message to Government on business sentiment across the UK.
Confidence in the service sector fell marginally from a score of 84.4 to 83.8 but in manufacturing the drop was much more significant, from 80.0 to 62.9.
In the service sector, there has actually been a small rise in the domestic and overseas orders but manufacturers are feeling the pain of rising prices and supply chain issues – with domestic sales down from a score of 51.3 to 50.5 and overseas sales falling from 57.1 to 39.7.
That is having a knock-on effect when it comes to employment, with firms in the service sector more likely to be looking to recruit than those in manufacturing.
Overall, it means the economic outlook for the wider region is down from 63.2 at the end of the second quarter of 2021 to 59.7 for the third quarter of the year.
Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said: “The QES results bear out what we are hearing from members. There was real confidence that there would be a big rebound as restrictions were fully lifted but issues around recruitment, the supply chain, cost increases and Brexit have dampened that.
“As the most recent GDP figures showed, the economy is growing but it is still significantly short of pre-pandemic levels.
“It’s vitally important that decision-makers look at how businesses are feeling, understand the issues they are facing, and look to find solutions that how the economy to come back stronger from Covid in the months and years ahead.”
Steve Harcourt, director of Prime Accountants Group, said: “The overall economic outlook in Q3 has fallen from the levels of Q2, however it is important to point out that both service sector and manufacturing sector in Coventry and Warwickshire remain above the 50-point index marker, indicating optimism within the local economy for the next 12 months.
“It really is a tale of two sectors in Q3 with a drop off and slowing in demand for manufacturing, while the service sector which makes up around 80 per cent of the economy, is seeing improvement nearly all the way across the board; with overseas and domestic sales, employment and investment/cashflow all increasing, suggesting the region is getting back to work and returning to near capacity in this sector as remaining restrictions are lifted.
“Manufacturing businesses across the region are highlighting key areas of concern as we move through this period of recovery – supply of product, supply of labour and price demands on both of these components.
“Recruitment difficulties are being reported across all sectors of the economy, which has its origins in leaving the EU and then the pandemic putting a halt to training and apprenticeship progression in most businesses, leaving local businesses with a shortage of skilled people to recruit from.
“Speaking to clients in manufacturing we are hearing of large raw material price rises. For example, sheet metal prices are at twice the level per tonne than two years ago. It is unsustainable for a business not to pass these rising costs on during Q4 and on in to 2022.
“All that said, Coventry and Warwickshire is still trending above the UK average when considering general business confidence, which historically has always been the case as we see solutions to challenges, innovation and opportunities throughout our economy.”
Sunny Parekh, of Warwickshire County Council, said: “Quarter three’s QES presents a mixed bag of results for Coventry and Warwickshire’s business and economic landscape. The overall economic outlook index has fallen for the first time this year, presenting a slowing in the pace of expansion, especially when compared to the highs seen in Q2.
“The continued unlocking of the economy at the beginning of the quarter has had some positive impacts, particularly within the local service sector which has seen a buoyant performance in terms of its orders, employment, cashflow and investment indexes in Q3.
“However, the quarter was also dominated by issues surrounding material and labour shortages and supply chain delays which have most notably impacted the local manufacturing sector, in turn constraining business activity. This is reflected in the reductions seen in terms of its overseas orders, employment, cashflow and investment indexes within the sector.
“For a second consecutive quarter price pressures dominated the survey results and to add to the worry, we could see a period of ‘stagflation’ if prices continue to rise at a faster rate due to material shortages and demand continues to cool off from the heights it experienced in Q2.”
Pictured: Louise Bennett (Chamber) and Steve Harcourt (Prime Accountants Group)