The East Midlands economy is continuing to grow in response to lockdown restrictions being eased – but there are warning signs ahead, according to the latest research by East Midlands Chamber.

The Quarterly Economic Survey for Q3 2021 by the region’s leading business representation group shows improvements across most indicators, including sales, cashflow, employment and investment intentions.

But East Midlands firms also reported issues with price pressures and access to required skills to fill job vacancies.

More than 400 businesses across Derbyshire, Leicestershire and Nottinghamshire took part in the survey between 23 August and 14 September.

East Midlands Chamber QES Q3 2021 data

Key findings from the survey for the East Midlands* included:

• UK sales increased for a net 37% of businesses, while advanced orders were up for a net 36%
• Overseas business activity lagged behind domestic but remained positive, with overseas sales rising for a net 8% of businesses and advanced orders rising 6% – although the projection is down by 5% compared to the Q2 forecast
• A net 25% of organisations increased their labour force in the previous three months, while a net 38% expect to grow it over the next three months
• After five consecutive quarters in which cashflow had been down for the majority of firms, it has now been positive in the past two quarters, with a net 15% of businesses reporting they had more access to cash in Q3
• Investment intentions are positive, with a net 26% expecting to spend on training people, and a net 16% on machinery and equipment
• A net 63% of businesses are confident their turnover will improve over the coming quarter, while a net 37% believe profitability will increase
• A net 46% of businesses said they were concerned about future price increases
• Two-thirds (67%) of companies attempted recruitment in the previous quarter and, of these, 71% said they faced problems with hiring the right people

East Midlands Chamber director of policy and external affairs Chris Hobson said: “The top-level results show a mixed picture that hides a number of variables at play in the East Midlands economy.

“Cashflow continues to improve for more businesses than not, training investment intentions are positive and overall confidence in future turnover continues its upward trajectory.

“As the economy continues its reopening after a successful vaccine rollout, the pent-up demand that characterised much of the summer remains a positive factor.

“But there are also a few of areas of concern. Price pressures continue to come from increased raw material costs, pay settlements and, increasingly, energy costs.

“This has knock-on effects, with investment in machinery and equipment growth – an important ingredient in fuelling a recovery – falling back slightly on the previous quarter.

“Performance in overseas markets remains volatile and, while turnover confidence has grown from Q2, confidence in increased profitability has fallen back, a result of squeezed margins.

“Recruitment is also a growing problem, with over seven in 10 struggling to fill vacancies across all skills levels.”

‘There’s still much that we don’t yet fully understand’

The State of the Economy Index – a measure of the region’s economic health compiled by aggregating various indicators – reached its highest level since Q3 2018 in the previous quarter.

It again rose in Q3 2021, albeit only slightly, as other issues have arose in recent months related to supply chain issues, skills challenges and additional taxation in the form of a health and social care levy that increases the burden for both employers and employees.

“There’s still much that we don’t yet fully understand,” added Chris. “There are many factors at play in shaping current challenges for businesses – the impact of policy responses to the pandemic on the recovery, changes in individual approaches to work expectations, structural changes to supply chain operations and immigration rules as a result of Brexit, and global shortages as the whole world looks to bounce back, to name but a few.

“The balance of influence of these different factors, some which are temporary and others that may be longer term, is still being unpicked. As we learn more over the coming months, we’ll have a better idea of whether they are flies in the ointment or something more fundamental.

“There is also trepidation ahead of the 27 October Autumn Statement, where we’ll find out more about how Government plans to tackle supporting the economy over the next period and the balance between tax and spend.

“Regardless, the coming months will be instructive as to what shape the recovery will take. As we learn more about which challenges are going to be longer term, it’s important that policy responds to this appropriately and doesn’t get distracted with temporary issues the market can take care of itself.”