Call for rate cut to boost business confidence
BUSINESS confidence indicators dropped sharply in the final quarter of 2007 as companies in Yorkshire and Humber braced themselves for an economic downturn in 2008, according to a new survey.
This was despite generally positive sales and order books which suggests most companies have not yet directly been affected by the economic downturn but worry there is worse to come.
The figures are compiled from the Quarterly Economic Surveys of the Chambers of Commerce in Yorkshire & Humber, which include responses from 662 businesses in the quarter from October to December 2007.
Chambers are calling for prompt action to shore up confidence and are asking the Bank of England to cut interest rates by a quarter of the point today and the
Chancellor to scrap the proposed 2p increase in fuel duty set to come in shortly, which will put further pressure on business costs.
The chambers say that the Treasury will already benefit from increased VAT revenues from the high oil price. There are eight Chambers of Commerce in Yorkshire and the Humber, collectively representing 12,000 business in all places, sizes and sectors.
Despite the drop in confidence, businesses report their own performance remains strong which should ease fears of a possible recession. The home sales balance has risen since the previous quarter by 3% to +25 and home orders also edged up 2% underlining that most firms remain in good shape. Export sales and orders were relatively stable, slowing by 1% and 2% respectively, although concerns over exchange rates jumped by 8% to 28%.
The most notable changes in the final quarter of the year relate to business confidence. Profitability expectations fell from +44 to +33, the lowest level recorded since the trough of the 2005 downturn. There is a real possibility of further falls in confidence in the first quarter of the year if the impact on sales, orders and the 'real' economy starts to be felt. Turnover expectations were down from +57 to +47 which shows that whilst businesses are preparing for a slowdown, a majority of firms in our region still expect to grow in 2008.
Other indicators underlined the wider uncertainty at present with a fall in employment expectations for the next quarter down 5% to +18; capital investment down 5% to +8 and investment in training down 2% to +13. There was a startling reversal in the level of concern over interest rates which fell from a high of 48% in the previous quarter to 39% as it has become clear that rates were coming down in 2008.
Commenting on the figures, Michael Oughtred, president of Yorkshire & Humber Chambers of Commerce said: “The wider uncertainty in the economy has clearly shaken the confidence of businesses across Yorkshire but their performance remains strong. The question is how well prepared our companies and the wider economy is for the downturn.”
“Businesses are battening down the hatches, and perhaps the biggest concern is that business confidence and linked indicators have fallen so sharply, to levels not recorded since the 2005 downturn, in the space of a single quarter at the same time as sales and orders remained quite strong. This suggests that fear and uncertainty, not real business performance, could be the biggest threat to the economy in 2008.”
“A small cut in rates today and a freeze in fuel duty in Alistair Darling's first Budget would help stabilise confidence and ensure Yorkshire's economy has a soft landing.”
