UK Business Showing Tentative Pick-Up, According to BCC Q1 Survey

As in the Continental countries we discussed here yesterday, business in the UK is showing some signs of picking up. The British Chambers of Commerce Quarterly Economic Survey, the largest business survey in the UK, showed modest gains in nearly every one of its components for Q1 in both manufacturing and services segments.

For Q1-2006 estimates of home sales (that is, domestic sales) by manufacturing firms ticked up 2 points to 15% from 13% in Q4; this reading is also very slightly higher than the 14% of Q1 2005. These survey results are percent-balances, that is, the proportion of companies reporting gains minus the proportion with declines. An advance in export sales was greater, to 23% from 12% in Q4, although the breadth of sales gains remains below the 26% of Q1 2005. Manufacturers feel somewhat comfortable with their general business pace, as a net of 43% look for improvement in turnover in the next 12 months. Profits are another matter, however, with a drop to 21% in confidence about increasing profits over the coming year, compared with 34% a year ago. Price pressures from raw materials and overhead costs are indicated by a rising number of manufacturing companies; labor costs, though, are a source of concern at the smallest number of firms since mid-2004.

More service-sector firms than manufacturers are pleased with their current domestic sales pace, with a net of 22% reporting sales increases, up from 18% in Q4. This does, however, represent some slippage from Q1-2005, at 23%. After outright declines during 2001 and 2003, export sales are now expanding at an increasing number of service-producing companies, and some 29% report gains in Q1; this compares to 13% a year ago and just 10% for all of 2005. The Chambers of Commerce background information tells that about 20% of service companies engage in exporting. Service firms are generally more confident about the upcoming sales than are manufacturers; in Q1, 51% of them indicated satisfaction with their outlook for the year ahead. But, like manufacturers, they are worried about profits growth, with just 33% looking for increases. This is better than the four most recent quarters, but lower than 38% in Q1 2005. Their cost pressures resemble manufacturers', with upward forces on overhead expenses and raw materials, but a diminishing number experiencing rising labor costs.

The survey overall thus shows gains in basic business activity, but concern over profitability. Despite this uneasiness over profits, activity at both manufacturing and service companies is climbing, and in the coming year more firms look forward to gains in plant and equipment investment and employment.