Inflationary Pressures Reach Uncharted Territory – Quarterly Economic Survey Q1 2022

• Nearly 2 in 3 (62%) firms expect to raise prices, a new historical high
• More than 3 in 4 (77%) cite inflation as a growing concern for their business, also an historical high
• Indicators for cash flow weaken as cost of doing business crisis escalates

The British Chambers of Commerce‘s Quarterly Economic Survey (QES) for Q1 2022 – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – shows inflationary pressures on firms reaching levels never previously recorded in its 33-year history. 

The survey of over 5,600 firms also revealed a continuing stagnation in the proportion of firms reporting increased domestic sales and investment, while cashflow weakened slightly in Q1. 

Business activity  

42% of respondents overall reported increased domestic sales in Q1, down from 45% in Q4. 18% reported a decrease, up from 16% the previous quarter.  

In the services sector, the balance of firms reporting increased domestic sales dropped to +21% in Q4, from +26% in Q4.  

In the manufacturing sector, the balance of firms reporting increased domestic sales was +24% in Q4, up from +22 in Q4. 

Inflationary Pressures  

62% of firms expect their prices to rise in the next three months, which is another record high figure for this metric and an increase from 58% in Q4. Only 1% overall expect a decrease in their prices.

For production & manufacturing firms, this rises to 75% and stands at 75% for retailers and wholesalers, 70% for construction firms, and 72% for transport and distribution firms. These are also the highest on record.

When firms were asked what pressures they were facing to raise prices, from a list of factors, 92% of manufacturers cited raw materials, 56% cited other overheads (the majority of respondents comments related to energy costs and transport costs), 34% cited pay settlements, and 19% cited finance costs.

When asked what was more of a concern to their business than three months ago, 77% of firms cited inflation which was the highest on record and a rise from 66% in Q4.  

The percentage citing interest rates as a concern also rose in the quarter. Nearly 1 in 3 (32%) reported interest rates as a concern, up from 27% in Q4. 

Cash Flow & Investment

Indicators for both cash flow and investment have shown no sign of recovery since the start of the Covid-19 shutdown.

For firms overall, 28% reported an increase to cash flow, a drop from 31% in Q4. 26% reported a decrease, up from 23% in Q4.

Investment in plant, machinery, or equipment continued to stagnate, with 27% overall reporting an increase, while 58% reported no change, and 15% a decline. This metric remains largely unchanged since Q2 2021.