LIVERPOOL CITY

REGION

QUARTERLY

ECONOMIC SURVEY

YEAR IN REVIEW

2016

www.liverpoolchamber.org.uk

T: 0151 227 1234

@lpoolchamber

Forewords

“As we start 2017, businesses are continuing to

trade through the uncertainty, and are looking to

seize opportunities as they arise. Our findings

suggest that business communities across the UK

remain resilient, and many firms are expecting

continued growth in the months ahead.”

– ADAM MARSHALL. Director General, British

Chambers of Commerce. - @britishchambers

“There is further evidence that rising prices

will be a key challenge to the outlook for the

UK economy over the next year, with the

significant rise in the cost of raw materials

increasing the pressure on firms to raise prices

in the coming months.”

– SUREN THIRU. Head of Economics, British

Chambers of Commerce - @britishchambers

“The fallout of the Brexit decision has been

reflected in the post vote uncertainty at national

and local levels, which is evident within these

results; however we still await crucial political

decisions which will truly be the driver behind the

future trade of our country”.

- JENNY STEWART. CEO of Liverpool and Sefton

Chambers of Commerce. -@JennyStewart

“There is clear evidence of a post-Brexit

slowdown within the UK. What really matters

now is how businesses and support agencies

react so that we can take advantage of the new

opportunities that will be available to us”.

-BRIAN MCCANN. Chairman of MC Vanguard

(Sponsors of QES locally) -@MitCharlesworth

@lpoolchamber

What Is BCC Economic Survey?

The British Chambers of Commerce (BCC) Quarterly Economic Survey (QES) is Britain’s largest and most authoritative private business survey based on more than 30,000 responses from across the financial year. Findings from the survey inform decisions by the Treasury and are a key metric for the Monetary Policy Committee when examining economic performance and determining strategy.

At a National Level The 2016 Quarterly Economic Surveys were collated by British Chamber of Commerce and in total included:

Approximately 31,000 responses across the United Kingdom, employing a total of 3,745,000 people.

From the manufacturing sector, 7,897 businesses (25%) employing 844,000 people responded to the survey.

From the service sector 23,304 businesses (75%) employing 2,901,000 people responded to the survey.

At a Local Level The 2016 Quarterly Economic Surveys were conducted by Liverpool & Sefton Chamber of Commerce, in conjunction with the British Chamber of Commerce.

Responses were received from a total of 475 companies across Liverpool and the surrounding area employing 149,091 people.

From the manufacturing sector, 135 businesses (28%) employing 9802 people responded to the survey.

From the service sector, 340 businesses (72%) employing 139,289 people responded to the survey.

251 companies (52%) were involved in exports. NB: The net balance figures referred to throughout this report are calculated by subtracting the

percentage of businesses reporting a decrease in a factor from those reporting increases. A

figure above 0 indicates growth, while a figure below 0 indicates contraction.

For example if 50% of firms told us their sales grew and 18% said they decreased the balance for

the quarter is +32% (an expansion). If 32% told us their sales grew and 33% said they fell the

balance is -1% (a contraction).

@lpoolchamber

The 2016 Landscape In a year in which Donald Trump became president elect, Britain left Europe and cars started to drive themselves, it’s difficult to predict future outcomes for 2017. However, this is the job of financial institutions and one of the strong reasons for the current uncertain environment. This page will list some of the key news stories over 2016, which could give context to some of the market ups and downs throughout the past financial year, not only within the UK, but worldwide.

Announcement of a United Kingdom referendum vote to leave the Eurozone.

A resulting Vote to Leave the Eurozone by the United Kingdom, creating questions around the European Economic Area regulations.

A new Prime Minister for the United Kingdom in Theresa May, after David Cameron’s resignation.

Greece’s continued struggle to fulfil financial obligations towards the Eurozone and attempt to leave.

An economic slowdown in China, although still in a positive growth rate this figure is worrying due to the size of the Chinese market.

A continued weak oil and mineral share price – affecting a large amount of emerging economies which rely on selling these.

Weak oil prices piling pressure into Russia’s financial situation.

A record low unemployment rate at 10.2% across Europe in April, the lowest since 2011.

Annual inflation in Europe near 0%, well below the European Central Banks 2% target.

The further development and spread of viruses and contagious infections worldwide such as Zika/Ebola virus.

Donald Trump voted President of the United States.

What are the effects of uncertainty? Uncertainty is currently having a large effect on the UK’s market place due to the events surrounding Europe and one of the world’s largest economies; America. Events such as Brexit and Donald Trump’s election to the Presidency of the United States create uncertainty across financial organizations such as banks and stock markets as they are difficult to measure, firstly; because of the unpredictability of the outcome itself and secondly due to the volatility of the financial market already it is risky to make an assured prediction alongside these events. However, as we begin to learn more about the future policies and terms set out after these results, the economic environment should become less uncertain, although this is not guaranteed to be a positive outcome.

@lpoolchamber

(Figure 1)

Figure 1

Summary of 2016 National Results Overall results for 2016 show modest growth within the Manufacturing sector and a minor dip within the Services sector, although as of the start of 2017 both sectors are seemingly back towards a state of growth. The dip across both sectors within 2016 was to be expected, as one of the key agendas within the media pre-Brexit was that a vote to leave on June 23rd would have large effects on the levels of uncertainty within the economic environment, thus creating a ripple effect on domestic and international sales. This effect is evident when QES domestic sales are compared to national GDP growth within the UK post-Brexit (Figure 1).

Services Looking at 2016 as a whole and comparing the final key balances to the final key balances of 2015 the services sector dipped by over half in domestic sales falling from a final balance in 2015 of +32% down to +15% at the end of 2016. This was also matched in export sales which dipped from +15% in 2015 to a final figure of +8% for the final 2 quarters of 2016. This figure is the lowest recorded since 2011; contrary to this the outlook is still promising for the service sector, as trends suggest that despite a short sharp downturn in the immediate aftermath of the Brexit vote, the sector has shrugged off the referendum result and is in a steady state of growth for the moment.

Manufacturing When comparing the key balances within manufacturing, the rates increased from the end of 2015’s results; domestic sales had a marginal improvement overall from +13% at the end of 2015, up to +15% at the end of 2016. These improved rates could suggest that the short term effects of Brexit were expected to have an impact on the manufacturing sector which led to a faster recovery rate. However, the manufacturing sector was in actually in a state of declining growth throughout 2015, therefore 2016’s results could be a sign that the decline has reached a point of stagnation. Manufacturing export sales have also had a positive year, finishing at a low +1% in the final quarter of 2015 rising up to +16% in quarter 4 of 2016. This may not be a sign of things to come, as these constant increases will be dependent on future export and import regulations around trading within the European Economic Area post Brexit.

@lpoolchamber

(Figure 3)

Business Confidence Overall results show there seems to be a confident outlook for both industries going forward; as +43% of manufacturers and +35% of services are confident turnover will increase in 2017. Although these are not as high as the levels reported in 2014, these are still encouraging figures across both sectors when compared to the rest of 2016; such as quarter 3 in which results were a low +36% for manufacturing and +28% for services. The National GDP growth level is evidently affected by the level of confidence in future turnover-increases within businesses, thus it is important for businesses to feel confident going forwards economically to maintain a positive growth within the UK (Figure 2). Evidence suggests that quarterly GDP Growth is still at a positive rate, however due to the uncertainty surrounding the UK market this continued growth cannot be guaranteed for the future (Figure 3). This is further evidence that uncertainties surrounding the domestic climate, especially relating to the financial sector, must become certainties as soon as possible to ensure a stable future growth rate for the United Kingdom.

(Figure 2)

@lpoolchamber

Key National Statistics This will provide a summary of the rest of the key national statistics provided via the Quarterly Economic Survey collated by the British Chamber of Commerce and what outcomes could be brought from these:

The services employment growth balance dropped 7 points (+16%, down from +23% at the end of 2015) whilst the manufacturing employment growth balance was up 3 points (+23% increased from +20% at the end of 2015). `

Employment expectations for the next 3 months are positive for manufacturing at +19% which is a slight increase from 2015’s final result which finished at +17% . In services it is also a positive balance of +18% although it is down from +21% at the end of 2015. Both of these results are higher than in Q3 (+16% for manufacturing and +15% for Services) which shows organisations are looking to invest in staff for the future more as the dust settles from Brexit.

The manufacturing investment balances saw some dips over 2016, with increases into plant maintenance and machinery investment finishing at +19%, although this is still lower than the end of 2015 which was at +24%. The services investment balances also dipped over 2016, with investment into training decreasing from +26% at the end of 2015, to +14% at the end of 2016.

Intentions to increase prices rose markedly in manufacturing, (+52%, up from +19% in 2015). In services however, this rose to +30% (up nine points from +21% at the end of 2015). A clear prediction by businesses of the potential effects of Brexit on their markets.

IN FOCUS: Recruitment

The figures reported for employment expectations nationally means there is a positive outlook for the start of 2017 employment growth rate (Figure 4). National employment figures had already started to drop at the start of 2016, this continued reaching negative growth post-Brexit in quarter 3, but our results show that this level should npw start to increase again as more businesses look to recruit staff. (Figure 4)

@lpoolchamber

Domestic Sales Summary

Summary of 2016 Merseyside Results Focussing on the results gathered from Merseyside and the surrounding areas, this will give a more selected view on how the economy is looking within Merseyside and how the business has improved or weakened. This will then be compared with averages on the national scale to see how the performance of Merseyside correlates.

Looking at the Domestic Sales across 2016

gives a clear picture on how a decision such

as Brexit affected the region; it also enables

a national comparison.

The results in this table (Figure 7) mirror

the average results historically in which

Merseyside reports better results in

manufacturing then the national level.

However this is apart from in Q4, in which

the service sector in Merseyside has had a

notable mark up and is ahead of national

results, whereas manufacturing has fallen

behind.

Q1 Q2 Q3 Q4

services 27% 18% 0% 22%

services natiional 26% 24% 9% 15%

manufacturing 15% 17% 19% 12%

manufacturing national

11% 9% 13% 15%

0% 5%

10% 15% 20% 25% 30% Domestic Sales over 2016

2008 2009 2010 2011 2012 2013 2014 2015 2016

Manufacturing 9.75 -32 18.5 20 18 45.25 44.75 25.5 15.75

Services -2.75 -19.75 0.75 -9 13.5 34.25 32.75 30 16.75

-60

-40

-20

0

20

40

60 Average Merseyside QES Results in

Domestic Sales

Within the Merseyside average

results in domestic sales (Figure 5),

there is a noticeable drop off for

2016.

This evidently isn't as bad as the

2009 post recession results; it is

however still down on previous

years. As well as this, when

compared to the averages

nationally, it is clear that

manufacturing within Merseyside

has prospered being 7% above the

national average within

Merseyside, however services have

struggled being 3% lower than the

national average.

(Figure 6)

(Figure 7)

@lpoolchamber

Export Sales Summary

When compared to 2015 export sales in manufacturing within Merseyside are at a markedly lower

overall figure in 2016. The final figure for export sales was +14%, which is down over half of 2015’s

Q4 result of +37%. This could show the damage done on international relations via the Brexit

decision, with importers in other Countries looking for a different country to trade goods with.

Alternatively, industries may be more wary heading into 2017 as regulations may be soon in place

on the United Kingdom’s exports. These figures for manufacturing export sales within Merseyside

are still higher than the nationally reported results.

Within services export sales the final figure in 2016 was +10%, this is up from the final result of

2015 which was at 0%. The final figure of 2015 was markedly lower than the rest of 2015, which

hit a high of +25% in Quarter 2; therefore this result could be an anomaly. When compared to the

national average Service Export Sales are also higher within Merseyside.

With both figures being above the National average at the end of 2016, this could be evidence of a

Northern powerhouse result post Brexit recovery.

Q1 Q2 Q3 Q4

Manufacturing 36 14 8 20

Manufacturing National

8 9 17 16

Services 13 0 0 10

Services National 13 11 8 8

0 5

10 15 20 25 30 35 40

Export Sales Over 2016

Looking across the year the Brexit effect is

evident as there is a large drop on Q2 and

Q3 export sales which were collated pre

and post result within the Merseyside area

(Figure 8).

However at a national level there is a

different picture within manufacturing as

reported results were at an increase.

However these results could be due to the

manufacturing sector being in a

downwards slide across 2015 and the

sector is continuing to recover regardless

of Brexit.

National service sector export sales

dipped pre and post Brexit result and have

stagnated towards the end of 2016.

However, as more Brexit news is reported,

and the future regulations around imports

and exports within Europe are announced,

these results will change significantly and

either recover or dip further.

(Figure 8)

@lpoolchamber

In comparison to National results, the North West area is within the top 4 of service sector

firms attempting to recruit in Quarter 3 2016 (Figure 9).

Key Merseyside Results

This will provide a summary of the rest of the key Merseyside statistics provided via the Quarterly Economic Survey and what outcomes could be brought from these:

The services employment growth balance dropped 7 points (+13%, down from +21% at the end of 2015), which follows a similar trend at a national level whilst the manufacturing employment growth balance was up massively by 33 points (+542 increased from +19% at the end of 2015), which shows there has been a massive investment into the future of manufacturing within Merseyside.

Looking ahead employment expectations for the next 3 months have slowed down from the previous year; firstly for manufacturing at +20% which is a decreased from 2015’s final result which finished at +27%, whilst in services it is a balance of +15% down half from +30% at the end of 2015. These are mixed results compared to the national level; a large increase in the workforce across 2016 for manufacturing definitely seems to have slowed down the employment expectations for the start of 2017, whilst the struggling services sector stays in the positive but drops, as investment in staff seems to not be the primary focus.

The manufacturing investment balances saw a large dip across 2016, with a marginal recovery towards the end of 2016. Increases into plant maintenance and machinery investment finished at +24%, lower than the end of 2015 which was at +37%, however, this is a positive rate as at Q3 2016 the rate dipped to low +6%. The services investment balances also saw a slight dip over 2016, with investment into training decreasing from +25% at the end of 2015, to +24% at the end of 2016.

Intentions to increase prices rose in both major sectors, firstly within manufacturing by double from +16% in 2015 up to +32% at the end of 2016. In services the percent rose by only 2% up to +22% from +20% at the end of 2015.

IN FOCUS: Recruitment

(Figure 9)

@lpoolchamber

Looking Ahead

The prospect of an increase in inflation rates is likely as of November 2016 UK CPI inflation rose up

to 1.2%, which is increased again from the 0.9% rate the previous month (Figure 10).

The rate has gone up mainly due to price increases in clothing and motor fuels, although this has

been slightly offset by a fall in air fares and oil prices. A forecast by BCC predicts that inflation will

surpass the Bank of England’s 2% target.

.

“Inflation has emerged in our survey as a rising

concern for many businesses. Both

manufacturing and services firms say they are

under pressure, particularly from the rising cost

of inputs, which is squeezing margins and may

weaken future investment”.

– ADAM MARSHALL.

Director General, British Chambers of

Commerce. - @britishchambers

“Having slowed significantly in the previous

quarter, the services sector has rebounded,

although it’s not yet back to levels seen at the start

of the year. Nonetheless, the service sector is likely

to have been the key driver of growth in the

quarter.”

-SUREN THIRU.

Head of Economics, British Chambers of

Commerce - @britishchambers

(Figure 10)

@lpoolchamber

Thanks to all our partners for supporting the Quarterly Economic Survey in 2016: