Concerns over ‘headwinds’ in the post-Brexit and post-pandemic economic recovery

Coventry at night

Business confidence continues to build but concerns remain about a number of ‘headwinds’ in the post-Brexit and post-pandemic economic recovery.

That was the view from a virtual breakfast meeting hosted by the Coventry and Warwickshire Chamber of Commerce to discuss the findings of its latest Quarterly Economic Survey (QES).

The survey for the second quarter of the year shows clear evidence of a recovery with overall confidence up to pre-pandemic levels and unemployment nowhere near the double-digit percentage that was predicted last year.

But concerns were expressed about shortages in the supply of goods and raw materials such as timber and steel, and the knock-on effect on prices and productivity, the phasing out of furlough, and the combined impact on the staggered return of VAT to 20 per cent by next April and the repayment of deferred VAT.

There was also a discussion around potential cash-flow pinch points ahead with Covid-19 cases rising again, and whether improved cash-flow reported in the QES was due to the increased profitability of businesses or whether it was being skewed by the various government financial support packages and measures that have been made available.

Fears over rising inflation were also raised and how that might affect the longer-term economic landscape.

Steve Harcourt, of Prime Accountants, which sponsors the QES, said businesses needed to remain agile so they could adapt to any change in conditions.

“Confidence is good but what we have got to see is that turning into profits and growing businesses,” he said.

“Real issues remain with supply and pricing, and that’s been put into context by one business that I’ve been speaking to which began trading solely online during the pandemic, and while they’ve had a great year selling online, because of the delays with stock they think there’s about £300,000 of sales that they can’t deliver at the moment because stock isn’t in the country.

“There are also businesses in construction who are saying they’re really struggling to keep sites open because they’re not getting materials in.

“No one knows if there’s going to be any further restrictions or disruption going forward because of the global picture, so people are going to have to review their business plans and forecasts quite regularly, and make sure that operations change accordingly.

“We will hopefully get to a point towards the end of this year where businesses are open fully and trading as they were pre-pandemic which will aid growth, and that may require some brave and bold decisions.”

The meeting also heard from Suren Thiru, Head of Economics at the British Chambers of Commerce, who said the rollout of the vaccine globally would have a major effect on economic stability.

“We are expecting an uneven global recovery and that’s due to the pace of the vaccination across the world,” he said.

“The UK is one of the leaders in the rollout which is increasing its economic prospects but there are a lot of other countries in South East Asia for example where it’s much more muted, so Covid restrictions may remain in place in some of those countries for longer and continue to impact things like the supply of raw materials and components, and that’s why some of those spikes in delay will continue into next year.

“What we’re seeing in the economy hasn’t really happened before, where we’ve had both demand and supply compressed for quite a long time, and then we’ve had this big bounce in demand and supply isn’t quite keeping up, so that’s creating issues like staff shortages and inflation as well, we are in a period of higher inflation and the question is how permanent is it going to be.

“What the Bank of England is looking at is not just what inflation is doing at the moment but what it may be doing in the next 18 months to two years and the impact on the wider economy.”

Sunny Parekh, Senior Economist at Warwickshire County Council, who analysed the QES data, said: “The economic outlook for Coventry and Warwickshire continues to gather pace, showing considerable robustness and strength to get back at pre-pandemic levels and presenting clear signs of recovery.”

“The clarity of the government’s roadmap and the various stages of restrictions being lifted has seen business confidence reach record heights, according to the survey data. But it also shows many businesses being concerned by price pressures in the coming months and we may see that further reflected in the next survey’s results.”

Sean Rose, Policy Officer of the Coventry and Warwickshire Chamber of Commerce, said: “The QES is so important to us and give us valuable data that we use to lobby into local and national government and to help us shape at local level the kinds of support that is offered to businesses in our region.

“We had some fantastic inputs from our panellists and some really interesting points raised by our members, we always learn so much from these discussions.

“We know we still have to manage our way through Covid, keep our absence low and productivity high. Hopefully over the summer we’ll also see that buzz in our towns and cities, which the whole economy can benefit from.”