Substantial increase in customer demand following vaccine roll-out
The success of the vaccination programme and relaxation of COVID-19 restrictions have contributed to a substantial increase in customer demand, according to this quarter’s Greater Manchester Chamber of Commerce Economic Survey (QES).
The QES based composite indicator for the city region, the Greater Manchester Index, improved by 24 points as all three sector groups – services, manufacturing and construction show signs of a rebound after the economic shock of 2020.
The survey of more than 300 businesses reveals that sales to both domestic and overseas customers increased in this quarter.
The index now stands at 30.4, an increase of 24 points from the previous quarter’s results.
Led by construction sector activity, current sales and advance orders from domestic customers increased relative to the first quarter of 2021.
The divergence seen in quarter one in the performance of different sectors has narrowed down. While 60% of construction sector respondents reported improved sales, just over half of manufacturing and service sector businesses reported that their sales to UK customers had increased in this quarter.
Since the services group accounts for well over 80% of the city region’s economy, sustained economic recovery depends on growth in services.
The balances relating to international trade have improved this quarter and are above zero for the first time since April 2020.
More businesses engaged in international trade are slowly getting used to the new regulations and requirements under the EU-UK Trade and Cooperation Agreement but trade with EU partners has been impacted.
Subrahmaniam Krishnan-Harihara, head of research at Greater Manchester Chamber of Commerce, said: “It will be a relief to both Greater Manchester’s business community and political leadership that there is now a strong rebound in the city region’s economy.
“After a long period of COVID-19 related restrictions, Greater Manchester’s business community seems buoyed by relaxation of restrictions.
“Although the postponement of the last phase of restrictions has caused some concern, this quarter’s results reveal robust growth as consumer spending has increased. The services sector, which includes the worst affected sectors of retail, hospitality and leisure, has now started to grow again.”
He added: “The survey results also showed that cash flow positions have improved in line the improvement in customer demand. Capacity utilisation remains modest with only 40% of businesses reporting that they are operating near full capacity.
“Without sustained improvement in customer demand, businesses will not be able to raise enough revenues to invest in expanding productive capacity. The results reveal that there are concerns around rising operational costs, probably as a result of anxiety around having to meet deferred tax liability or repay debt taken on during the pandemic. As a result, discretionary business spending is still low.”
He said of particular concern is that some age-old problems have resurfaced. As businesses try to recruit staff, recruitment difficulties have gone up.
In the last few days there have been numerous reports about labour shortages in disparate occupations such as chefs, health workers and truck drivers.
Mr Krishnan-Harihara said: “To ensure that labour shortages do not cause wage inflation and present a bottleneck to economic growth, it is incumbent upon government to help Greater Manchester’s businesses and educational institutions with the support and funding they need to deliver training and upskilling that meets employers’ needs.
“We have to look beyond this immediate optimism to fix the fundamentals to secure the opportunity to rebuild and renew our economy.”