The percentage of firms expecting an increase in turnover over the next year has risen to the highest level since Q1 2022 when Covid restrictions were lifted, according to the latest Quarterly Economic Survey from the British Chambers of Commerce.
The data also reveals that more firms expect price hikes, ending the downward trend of the last two years.
The survey of more than 5,000 firms across the UK, most of whom are SMEs with fewer than 250 employees, also reveals business performance across different sectors varies considerably.
The percentage of respondents reporting increased domestic sales rose slightly to 36%, compared with 35% in Q3. Meanwhile, 22% reported a decrease and 42% said sales had remained constant.
There were significant sectoral differences. 46% of consumer services firms said they had seen a boost in sales, whereas 35% of hospitality companies and 28% of retailers saw a decrease.
The percentage of firms expecting to see their turnover increase over the next 12 months increased to 56%, from 53% in Q3. Only 15% of respondents are expecting to see their financial situation worsen in the year ahead, 29% expect things to remain the same.
Profitability confidence has also improved, with 47% of companies saying they expect profits to increase in the next year. That compares to 45% in Q3. 21% of respondents believe their profits will fall.
Despite inflation continuing to ease, more firms are expecting their prices to rise, compared with the last quarter. 47% of respondents are predicting an increase (compared with 41% in Q3), 49% think prices will stay the same, and just 4% are anticipating a decrease.
While inflation remains firms’ biggest concern (58%), a recent trend in rising worries over interest rates has eased. 39% of businesses say they are concerned about the cost of borrowing, compared with 41% in Q2 and 45% in Q3. These figures remain high compared with the pre-Covid trend.
David Bharier, Head of Research at the British Chambers of Commerce said: “The latest QES results show steadily growing confidence among UK SMEs, particularly compared to this time last year, when the UK was beset by a significant energy price shock and political instability.
“However, while it’s likely the UK will avoid a technical recession, these results provide more evidence of a very low growth climate as most SMEs continue to report no improvement to sales, cash flow, or investment.
“The data also reveal the disproportionate impacts of economic shocks on different types of businesses. Manufacturers, for example, are more likely to be exposed to the trade barriers established with Europe, while many firms in the retail and hospitality sector are reporting recessionary conditions.
“Businesses have been desperate for a clear long-term plan for growth from Government that addresses infrastructure, access to skills, and global trade.”
Shevaun Haviland, the BCC’s Director General, added: “Our data shows business confidence is growing, but real challenges remain in the coming year. Worries about interest rates and inflation remain at historically high levels, despite a slight easing of concern.
“The recruitment challenges many firms are facing underlines our calls for a skills plan from Government alongside an affordable immigration system.
“Investment continues to the Achilles’ heel for business. The Chancellor’s decision in his Autumn Statement to make full expensing permanent was very welcome. 2024 needs to be the year when companies are given further assistance to invest.
“In the noisy election year ahead, it is crucial politicians remain focused on growing the economy and helping businesses thrive.”
