Greater Manchester Chamber of Commerce's latest Quarterly Economic Survey (QES) results for the first quarter of 2019 shows that the economy is feeling the impact of Brexit uncertainty. Business activity has dipped for the first time since a slow recovery from the aftermath of the EU referendum. However, the long-term prospects for Greater Manchester's businesses and economy remain positive.

Business confidence in Greater Manchester remains stable despite the political climate and the seemingly never-ending plot twists around Brexit

Greater Manchester Chamber's key economic indicator for Greater Manchester, the Greater Manchester Index™, which combines seven key indicators taken from the QES, declined to 19.6 in Q1 – a significant drop from 33.0 in the final quarter of 2018.

The QES reveals a fall in domestic demand for all three sector groups in the last quarter: manufacturing, construction, services. UK sales and advance orders for the manufacturing and construction sector groups fell sharply, with levels approaching what was seen in May/June 2016. The services sector also saw a fall in demand, which may be due to lower consumer spending. Even the Christmas season did not give the usual fillip to retail sales, and, with the exception of food retail, post-Christmas sales showed a slight decline in 2018 compared with the previous year.

On international sales and orders, construction received a boost with both sales and advance orders for the sector showing a massive increase. Export performance in the manufacturing and services sector groups declined after recording steady levels for over two years, whilst exports in services in the last quarter were the lowest since the third quarter of 2012. For the past couple of years after the EU referendum, manufacturing exports had received an exchange rate bonus when Sterling lost value. Although exchange rates continue to fluctuate, the advantage of a weak Sterling has been lost, which along with continued uncertainty around future international trading arrangements, continues to depress manufacturing exports. Brexit uncertainty and weaker global demand may cause exchange rates to further waver, a cause for concern among all sectors.

The reduction in both domestic and overseas orders for services and manufacturing has allowed an easing of capacity pressures and many businesses have reported that they do not plan to add to their workforce immediately. Nonetheless, recruitment difficulties remain, and the shortage of skills remain a key constraint for business growth in Greater Manchester.

Importantly, business confidence remains high. Despite the prevailing uncertainty, businesses in the manufacturing and construction sectors reported steady prospects for both turnover and profitability over the mid to long term.

Explaining the results, Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber, said: “The QES results reveal that 2018 was a good year for Greater Manchester’s businesses with year on year growth in all three major sector groups.

“The decline in economic activity in the first quarter of 2019 has been caused by a variety of factors, primarily prolonged Brexit uncertainty. The decline in domestic demand is also a result of poorer than expected retail sales in the Christmas season and the fact that both corporate and household spending has been tightened in the last quarter. If the current UK political turmoil continues, both business investment and household spending are likely to be further affected in the current quarter.

“Demand within the construction sector, especially for housing, remains strong. The increase in overseas sales and orders is a reflection of increasing overseas investment in commercial and residential projects across Greater Manchester. Overall, the Greater Manchester economy remains strong with annual GVA growth of between 2.5% and 3%.”

Commenting on the results, Chris Fletcher, Marketing & Campaigns Director at Greater Manchester Chamber, said: “The results show that political uncertainty and the lack of clarity on the future UK-EU relationship has led to reduced business activity.

“Without the Government providing a definitive way forward for exiting the EU and agreeing on a future partnership that secures the trading relationship between the UK and the EU, there may be further stagnation and what are currently small issues will expand into deep-rooted long-term threats to economic growth. Business confidence in Greater Manchester remains stable despite the political climate and the seemingly never-ending plot twists around Brexit. Beyond Brexit, skills shortages and local business environment issues are still the biggest issues for our members.

“Speaking with members they really do need the politicians to break the current impasse then there can be a stable platform to build on for the future. Political point scoring and arcane parliamentary laws and procedures don’t really mean that much if you’re faced with some stark choices about your future business strategy and people’s livelihoods."

The Quarterly Economic Survey is the UK’s largest and most reliable business confidence survey. It is the first to be published in each quarter and is used by key policy makers to determine economic decision-making.

The Greater Manchester QES alone has the same sample size as other national business surveys.