The Greater Manchester Chamber of Commerce has sounded a warning note about the city-region’s economic position in its latest quarterly briefing.
Businesses are facing tough prospects with consumer spending declining as the cost of living rises, prices going up across the board, high inflation and demand reducing.
The Chamber said the outlook for manufacturing was particularly “dire” and said the construction sector was currently the “saving grace” of Greater Manchester’s economy.
The organisation said its latest figures for the second quarter of 2022 show that relying on residents spending money, which fuelled the immediate post-Covid recovery, cannot be relied on any longer and Government must now do more to help businesses invest.
What do the latest figures show for Greater Manchester?
The figures for the second quarter show that the Greater Manchester Index declined to 31.3, a decrease of one point from the previous quarter. It means the index, which is made up of a number of key economic measures, has now been more or less in the same place for the previous five quarters.
This, the Chamber says, is evidence that last year’s economic growth caused by consumers unleashing pent-up spending after the periods of Covid-19 restrictions is over, with concerns about the inflation rate and uncertainty around demand at the forefront of company’s minds.
Around 65% of businesses in Greater Manchester are planning to increase their prices to protect their margins,
And just under 60% of firms say inflation is a business concern for them.
Retail sales have declined, which Chamber of Commerce head of research Subrahmaniam Krishnan-Harihara admitted was something of a surprise as he had expected the end of the month to see consumers stocking up and making purchases for the Queen’s Platinum Jubilee Bank Holiday weekend.
Smaller business, classed as those employing fewer than 250 people, have been hit hardest, while the business to consumer (B2C) sector has also seen declines in the latest quarter.
The good news, the Chamber says, is that construction is stable across Greater Manchester with demand being maintained and employment prospects are also reasonably positive, with 81% of businesses recruiting looking to fill full-time vacancies.
However, while construction “seems to be the saving grace here”, in Mr Krishnan-Harihara’s words, there are also shortages of labour and skills in the sector which could provide long-term issues.
Alarm and shock at the outlook for manufacturing
The most concerning figures in this quarter concern manufacturing, which faces an outlook Mr Krishnan-Harihara described as “dire”.
Quarterly sales in the sector declined by 23 percentage points and advance orders by 25 percentage points.
This means manufacturing has recorded a reduction every month since January 2022 and now remains below pre-pandemic levels.
Mr Krishnan-Harihara said high inflation was hitting the sector hard, with the cost of raw materials going up and shipping costs rising dramatically, with the cost of bringing one 40-foot container from Asia to Europe now setting businesses back around £17,000.
FIrms needing to import are also facing the impact of Brexit as the pound weakened after the referendum in 2016 and has not substantially recovered from that, Mr Krishnan-Harihara said.
“The manufacturing picture is quite worrying, I am quite shocked,” he said. “Businesses we have spoken to said there is a huge delay in getting raw materials, they are having to place orders months in advance. That affects their cash positions because more of their working capital is stuck in inventory.
“There’s also uncertainty around demand so lots of goods are piling up which are not being sold as fast as they could be.
“I have a feeling this is not going to get immediately resolved. The situation in China, with all the Covid restrictions there, is also having an impact.”
What has the Chamber of Commerce said about the latest quarter?
With cashflow also a major concern for Greater Manchester’s businesses, the Chamber of Commerce has said Government needs to act as the situation which propelled something of a recovery from the Covid-19 pandemic is brought to a screeching halt by consumer spending drying up amid widespread fears about the cost of living.
Mr Krishnan-Harihara said: “In 2021 we had a significant increase in consumer spending sustaining economic growth. We cannot rely on consumer spending alone from now on. That has reached the maximum.
“The fact retail sales declined in May is a very good indicator of this. We have been worried that inflation and soaring cost of living would affect consumer spending, and that has now come to pass.
“The sharp decline in demand in B2C services is clear evidence that consumers are reining in expenditure. Consumers will continue to cut expenditure as energy prices rise further.
“We need business investment. The key ask of the Government is to introduce additional measures to help businesses invest more. Business investment needs to be unlocked and we urge the Government to enable businesses to invest and expand capacity.”