Regional economic outlook dips - but unexpected boost for manufacturing

Monday 18th of July 2022 08:28 AM

Manufacturing in Coventry and Warwickshire saw an unexpected boost in the second quarter of 2022 – but the overall economic outlook for the region took another dip.

They were the findings of the Coventry and Warwickshire Chamber of Commerce’s latest Quarterly Economic Survey (QES) which measures how firms across the patch are performing and how they feel about the months ahead.

The survey showed a drop in the economic outlook to its lowest level since the second quarter of 2021 but it remains on a par with the rest of the UK economy.

It did, however, see a rise in confidence among manufacturers as both overseas and domestic orders were reported to have increased.

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 a neutral score and anything above means the majority feel positive and anything below means the reverse.

As well as being a barometer for the local economy, the results are fed into the British Chambers of Commerce’s national QES.

The service sector saw a drop in domestic orders, down from 62.1 to 52.4, as factors such as rising inflation began to take their toll. In manufacturing the score jumped from 47.6 to 53.9.

Overseas sales in the service sector dropped from 47.2 to 43.7, while manufacturing rose to 50.0 from 45.0.

There were positive scores on employment and investment in manufacturing while employment prospects fell in the service sector but investment plans remained unchanged on the previous quarter.

It meant that business confidence in the service sector across Coventry and Warwickshire fell from 83.7 to 63.5 and in manufacturing it rose from 46.1 to 55.1.

Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said: “In broad terms, the economy of Coventry and Warwickshire is holding up well in the face of many issues that are putting a drag on growth.

“Despite a drop in the economic outlook based on the responses to this survey, it is still in positive territory which means the regional economy is on course to continue to grow.

“It is pleasing that manufacturers appear to have seen a bit of a bounce in the second quarter of the year through increased domestic and overseas sales.

“The service sector did see a dip in fortunes compared to three months ago and there are a host of factors that will have played a part in that as businesses have had to face rising inflation, recruitment problems and a general increase in the cost of doing business.”

Steve Harcourt, director of Prime Accountants Group, said: “As we entered Q2, it was clear we were heading into a turbulent time for the local and national economy, which would impact all businesses and consumers. 

“With a large part of the local economy involved in supply chain, businesses would be affected by events happening around the world as has been the case for the last two years. 

“With no prospect of economic stability in the near future the local economic confidence has been dented in line with the rest of the UK regions.

“As expected, the scores from this quarter have seen a drop across the board in the service sector, as a result of the cost of living crisis and consumers tightening their purse strings. 

“It’s promising to see that the outlook within the manufacturing sector has improved despite the challenges businesses are facing across the region.  Overall the results still show the local economy as having a positive outlook with the overall economic outlook index being at 54.9%.

“With all the challenges that we can see ahead, it is important as a region we continue to push through the second half of  the year and do what we can to support one another in business.”

Sunny Parekh, of Warwickshire County Council, said: “Coventry and Warwickshire’s overall economic outlook index continued to indicate a robust local economic landscape, despite the overall index score experiencing a reduction in Quarter Two.

“The second quarter of the year presented businesses in Coventry and Warwickshire with a turbulent operating environment as the economic fallout of the war in Ukraine created considerable economic shocks, particularly impacting energy, commodity and food prices. Inflation reached unprecedented heights in Q2, as businesses and consumers alike had to navigate the impact of price pressure on their business operation and household budgets respectively.

“The latest QES shows a varied local picture, any pent-up demand that was experienced by local services in Q1 was mitigated in the second quarter as the outlook index reduced significantly, likely due to the tightening of household budgets impacting consumer demand levels. Meanwhile, the local manufacturing sector surprisingly bucked the national trend with positive movements in its overall economic outlook, somewhat offsetting the decline seen in the service sector results.

“Despite such deviations, both sectors continue to show a positive economic outlook in the face of economic adversity, but the question is for how long?

“Looking forward to the second half of the year paints a difficult picture for local businesses. The economic headwinds facing the economy show little signs of decelerating as inflation is forecasted to continue to rise as wage growth slows further impacting demand levels both nationally and locally.”

A Quarterly Economic Breakfast will be held at the Holiday Inn in Kenilworth on Wednesday, July 13. For more information and to book on go to https://www.cw-chamber.co.uk/events/quarterly-economic-breakfast/