Quarterly Economic Survey (QES)

Business Survey: Trading environment is positive but confidence takes a slight dip

30th Oct 2023

  • The trading environment remains largely positive, with 77% of businesses performing well or reasonably well
  • And more businesses are reporting increasing employment, confidence and investment intentions than those reporting a fall this quarter
  • However, business confidence has taken a dip after a period of recovery
  • And 55% of members are seeing some slowdown in demand, although for most only a little (43%)
  • Inflation is a pressing issue but concern around it shows positive signs of easing

Whilst the trading environment continues to be largely positive for businesses, there are signs of some challenges. A new report from Northern Ireland Chamber of Commerce and Industry (NI Chamber) and BDO NI found that in Q3 23, more businesses were operating below capacity, confidence has taken a slight knock and less recruitment is taking place.  Price pressures are easing but inflation remains a very significant concern, with labour costs dominating pressures to raise prices. 

According to the Quarterly Economic Survey findings, the share of businesses performing well (34%) or reasonably well (43%) remains high at 77% but is down from 83% in Q2. Just over 1 in 5 (21%) are covering costs/struggling, which is up from 17% in Q2.

Slightly over 1 in 2 (55%) NI Chamber members are seeing some slowdown in demand, although for most (43%) only a little. Around 1 in 10 experienced a significant slowdown in demand in Q3.

Business confidence took a dip in both manufacturing and services in Q3 23, after what had been a period of recovery.

In terms of confidence in turnover growth in the next 12 months, the balance is +32% (+44% Q2) for manufacturers and +42% for services (+53% Q2).

Members are less certain around profitability growth for the next 12 months. In Q3 23 both balances were positive with a balance of +4% manufacturers and +13% services expecting profitability to grow in the next 12 months. This compares to +24% for both sectors in Q2 23.

Prices and costs
Expectations to raise prices stabilized in Q3 after easing for a few quarters. Expectations to raise prices are higher in services than manufacturing.  In Q3 23 the balance of manufacturers expecting to raise prices was +31% and for services +43%.  This is down considerably from a peak of +88% for manufacturers in Q1 22 and for services at +76% in Q4 22.

Inflation continues to be a pressing concern for members but shows positive signs of easing, particularly for manufacturing companies. In Q3 23, 63% of manufacturers reported inflation as a greater concern than 3 months ago, down from 76% in Q2 23 and 91% in Q3 22. In the services sector, 75% are reporting inflation as a key concern, compared to 74% in Q2 23 and 91% a year earlier.  Interest rates are a concern for just over 2 in 5 businesses.

Labour costs remain the biggest price pressure for both sectors, although some other cost pressures appear to be easing. In Q3 23 83% (85% Q2) of manufacturers and 84% (76% Q2) of services firms reported that labour costs are a key pressure on them to raise prices.

The pace of energy cost inflation has continued to slow and fewer firms are reporting pressure from utility and fuel costs.  Over the last year, the share of manufacturers reporting utilities as a pressure to raise prices has fallen from 91% to 64% and in services from 82% to 64%.

Trading arrangements
In Q3 23 members were asked about the potential impact of the Windsor Framework on their business and the economy. From a business impact perspective, 10% of members are very positive about the potential impact of the Windsor Framework, 24% are positive, 35% are neutral and 14% are negative. 11% believe it is too early to say. The total percentage of members who are positive about the Framework’s impact on their business is down from 44% in Q2 to 34% in Q3.

From an economy perspective, 13% of businesses are very positive about the Windsor Framework’s impact on the economy and 36% are positive.  8% are negative and 5% very negative about its impact on the economy.

Areas of concern
Survey respondents were asked to identify their main areas of concern for their business – the most significant responses were the lack of an NI Executive and inflation.  This was followed by issues including planning, skills and supply chains.

Most member businesses said they believe that their business is innovative, with 28% of businesses believing they are highly innovative and 53% moderately innovative. However, almost 1 in 5 (14%) believe they have limited innovation and 3% say they are not very innovative.

Manufacturers and large firms (250 or more employees) are more likely to rate themselves as highly innovative.  Two in 5 manufacturers believe they are highly innovative compared to 25% of service businesses.

Speaking about the survey results, Suzanne Wylie, Chief Executive, NI Chamber said:

“We are encouraged to see that a majority of businesses in Northern Ireland continue to perform well. However, this report confirms that there are challenges in the background including inflation, recruitment difficulties and labour costs, all of which have the potential to impact business growth.

“More than any other issue, members identified the absence of an Executive as a key concern and we can see the impact of that played out in indicators like business confidence, where there has been a loss of the positive momentum gained in the first two quarters of this year. In such a difficult trading environment, particularly for manufacturers, NI Chamber has repeatedly stressed the urgent need for the Executive to return. The issues are stacked up and while we know that having Ministers in place won’t solve all the problems overnight, the absence of a functioning executive exacerbates the challenges and inhibits our ability to maximize opportunities.

“At NI Chamber, we’ve been closely monitoring the impact of new trading arrangements since they were first announced and as we have indicated previously, sentiment around the implementation of the Windsor Framework should be expected to fluctuate as we move through the various stages of implementation. Whilst the largest category of respondents is positive about its impact on the economy, this Quarter’s findings serve as a reminder to the UK Government about continuing to work with businesses in a timely fashion, and the need to drive efficiency in new processes through the next implementation phases.”

Brian Murphy, BDO NI Managing Partner added:

“There is much to welcome in the latest QES results, notably that 77% of responding businesses are performing well, with positive balances also recorded for expected growth in turnover and profitability. One area where NI is leading the way is cashflow – the life blood of all businesses. Local firms are now reporting stronger cash reserves than at any point since Q1 2015 and crucially it is the first time since 2018 that we have been able to report positive cashflow balances for two consecutive quarters.

“Although local businesses are still facing the threat of inflation, greater energy costs and increasing labour costs, it is important to reflect on how far we have come over the last three years. That local businesses are performing as well as they are, is a testament not only to their resilience but also to their willingness and ability to adapt. With 81% of local firms identifying as being innovative, there is no doubt that this will be one of the main reasons why business performance in Northern Ireland has been so strong. This is encouraging and again only illustrates that by managing its cashflow and embracing innovation, local businesses know how to manage uncertainty and to plan positively for the future.”