QES Q4 2024 - Rising costs fear for Humber firms following Budget’s tax increases

WITH inflation falling in the third quarter of 2024 and with hints from the Governor of the Bank of England, Andrew Bailey, when he joined Chamber business leaders for lunch in North East Lincolnshire at the beginning of October, hopes were high of a further cut in interest rates in December.

However, with the economy slowing down and inflation on the rise again, those hopes were dashed  with the Bank of England’s Monetary Policy Committee voting to hold interest rates at 4.75%.

And with the realities of the Chancellor’s first tax raising Budget starting to hit home, there is much unrest in the business community about higher overheads which will show themselves more clearly in the results for the first quarter of 2025.

The results for Quarter Four were not pretty, after a hint of optimism in Quarter Three, most balances returned to negative territory, with the business outlook appearing to be challenging, at best.

Home Sales fell back to Quarter Two levels, with a balance figure of –14, while Home Orders did worse, with its balance figure dropping to –24, thanks to 62 per cent of firms saying they had seen a decrease.

The export sector fared slightly better, with Export Sales dropping just eight points to –67 and Export Orders increasing slightly, but only to a balance figure of –67.

The number of firms who said their workforce had decreased in the last three months was up with the balance figure dropping to –16, while the number of firms looking to take on new staff in the next three months tumbled sharply to a balance figure of –34, although just over half the respondents reported trying to recruit staff in the last three months.

Of those, there were 29% fewer full time positions when compared to Quarter 3, and 21% temporary roles, with permanent jobs showing a nine point increase and part time roles increasing by eight points.

A high 79% of those surveyed said they had encountered difficulties recruiting the right kind of staff, with management roles being the most difficult to fill, while skilled manual, clerical and unskilled or semi-skilled jobs all showing an average drop of seven per cent.

After something of a recovery in Q3, Cashflow was again challenging in the Q4 survey, with 20% more firms saying it had dropped in the last three months.

Turnover expectations for the next 12 months also dropped markedly dropping 14 points to a balance figure of –7.

Profit expectations for the next 12 months told a similar story, with the balance figure dropping 16 points to –39.

And only eight per cent of firms said they operating at full capacity, 27 percent of businesses saying they are planning to increase their prices in the next three months.

The biggest pressures on prices were pay settlements, which had risen by 26 points to 84, while the biggest external concerns were business rates and tax fears, while competition dropped by 14 points and inflation fears dropped by nine points. Business rate concerns were on the rise again, up by six percentage points.

Nationally, The British Chambers of Commerce said: “The worrying reverberations of the Budget are clear to see in our survey data. Businesses confidence has slumped in a pressure cooker of rising costs and taxes.  

“Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging. Businesses are already cutting back on investment and say they will have to put up prices in the coming months. 

“The Government is rightly coming up with long-term strategies on industry, infrastructure and trade. But those plans won’t help businesses struggling now.  

“To help business we need to see quick action in three specific areas. Firstly, Ministers should accelerate business rate reform to create a system that incentivises investment.

“We also need the Government to speed up infrastructure investment, to help SMEs in supply chains across the country. Finally, it’s crucial to support exports, prioritising a better trading deal with the European Union. 

“Without urgent Government action to ease the pain on businesses, the challenging economic landscape will get worse before it gets better.”

Chamber Chief Executive, Dr Ian Kelly, commented: “The quarter three figures showed a slightly improved picture with many indicators showing something of a bounce back, but our Quarter 4 results have seen the majority of those gains go into reverse.

"It is clear that increased costs caused by higher overheads and a substantial increase in the cost of employing staff thanks to Rachel Reeves’ first Budget are weighing heavily on the minds of business leaders across the Humber region.

"Most firms say they are now planning to increase their prices in the coming months, while at the same time cutting investment in training and equipment.

"Cashflow and profit expectations are also down as firms look for ways to reduce the impact of higher overheads in the midst of a tightening economy, not helped of course, by the Bank of England’s decision in December to delay a further cut in interest rates which had been hinted at by the Governor of the Bank of England, Andrew Bailey, when he met with senior Chamber Business Leaders at a private lunch in Grimsby in October."

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