The QES is the first major economic indicator of the year and is closely watched by the Bank of England and the Treasury.
Manufacturing and services firms reported somewhat weaker Q1 results in most areas, including exports, domestic markets and investment, but this follows very strong findings in Q4 2014.
The figures are a reminder that the path to sustainable long-term growth is bumpy and challenging. As the general election approaches, support for growth must be at the heart of the debate, with a much-needed focus on boosting exports and business investment.
The QES of Chamber members is one of Britain’s largest and most authoritative private business surveys based on more than 7,500 responses from firms employing around 850,000 people. Manufacturing and services firms reported weaker growth but quarter-on-quarter trends support the view that the economy is growing at a steady rate. However, balances are lower in the key areas of export sales and investment, which are crucial to the rebalancing of our economy.
It is not a huge surprise to see slightly weaker numbers at the start of the year, after a very strong fourth quarter. Crucially, our survey demonstrates that businesses remain optimistic, though they expect to grow at a slightly slower rate over the coming months.
The findings are certainly not cause for alarm but are a salutary reminder that the UK still faces obstacles on the path to sustainable long-term growth. Unless support for exports and business investment is placed at the heart of any future government, consumption and government spending will continue to drive an economic recovery that is unbalanced and unsustainable.
Our message to the politicians is simple: the national interest must come before short-term political point scoring. All parties agree the UK needs to strengthen its trade performance and that we need to encourage our businesses to invest more. These should be issues that unite rather than divide the parties over the weeks ahead.
Looking longer term, the QES results for the last two quarters give a more representative picture of the economy. Balances still point to solid economic growth continuing in 2015 but the UK recovery remains unbalanced. Growth is still too reliant on consumer spending and the current account deficit remains unsustainable. While a healthy consumer sector is vital for the economy’s wellbeing, much greater efforts are needed to increase the contributions of exports and capital investment to Britain’s growth.
The Q1 2015 results show falling inflationary pressures, particularly in manufacturing, and easing pressures on capacity. This reinforces our view that the Monetary Policy Committee must maintain interest rates at their current low level at least until early in 2016.
- After very strong increases recorded in Q4 2014, almost all the national balances for both services and manufacturing weakened in Q1. Exports have fallen, by seven points for manufacturers but only a point for the service sector.
- Domestic sales and orders for manufacturers are growing but at rates 6% and 4% respectively slower than in Q4 of 2014.
- Both manufacturing and services firms have lowered their investment intentions.