Confidence in increased earnings increased at the end of the fourth quarter by seven percentage points to hit a net positive rating of 35 per cent for services firms, according to a quarterly survey from the British Chambers of Commerce (BCC) – while manufacturers’ confidence is even higher, at 43 per cent.
Services firms in particular saw a sharp fall-off in confidence in the third quarter of 2016 after the Brexit vote, but morale has since recovered some of its losses. However, the measure is still far below 2014 levels.
Suren Thiru, head of economics at the BCC, said: “Having slowed significantly in the previous quarter, the services sector has rebounded, although it’s not yet back to levels seen at the start of the year. Nonetheless, the service sector is likely to have been the key driver of growth in the quarter.”
Companies (and manufacturers in particular) also expect to raise investment to fulfill the new rising demand.
An increasing proportion of firms also reported better domestic sales, although exports changed little from the third quarter.
However, a record number of firms predict their prices will rise as inflationary pressure takes hold. A rise in raw materials costs explains the bulk of future price rises.
The devaluation of sterling in the aftermath of the EU referendum result – it has fallen by more than 18 per cent against the dollar from its 2016 peak before the vote – has increased the cost of materials and services bought in other currencies.
While the fall in value has boosted London’s blue chip stocks – who make much of their earnings in dollars – to record highs, UK inflation is set to increase markedly.
However, inflation expectations in London – where the services sector is most concentrated – were the second lowest in the country.
Thiru said: “There is further evidence that rising prices will be a key challenge to the outlook for the UK economy over the next year, with the significant rise in the cost of raw materials increasing the pressure on firms to raise prices in the coming months.”
The findings reflect other confidence surveys which show UK businesses assured of their own healthy prospects, but with a gloomier outlook for the UK economy as a whole.
Adam Marshall, BCC director general, said: “Our findings suggest that business communities across the UK remain resilient, and many firms are expecting continued growth in the months ahead.