The fall in sterling following the Brexit vote helped British business shake off a period of uncertainty to end 2016 on a high note as companies reported increases in export sales and orders.
But the quarterly health check by the British Chambers of Commerce (BCC) found that business activity in the last three months of the year failed to rebound to historic levels, leaving companies worse off than a year ago.
And the survey, among the largest of its kind with more than 7,200 respondents, detected concerns among business leaders that rising import prices would slow growth this year.
The BCC said businesses turned a corner in the fourth quarter after a fall in confidence in the previous three months. Echoing official figures that showed GDP growth was among the highest in the developed world, the BCC found that the economy remained robust in the last few months of the year in part due to the boost from the lower pound, which made British exports cheaper.
It said most firms in the manufacturing and services sectors were confident their turnover would improve, that job opportunities would grow and investment in plant and machinery would improve in the next year.
Manufacturers were the biggest beneficiaries from the fall in sterling according to the survey, which found that a similar balance of firms reported a rise in exports, +16%, as in the third quarter. The balance for export orders was +13%, similar to +12% in the previous quarter. Both balances were up from +1% in the same quarter last year.
The services sector improved after a dramatic fall in the previous quarter with domestic sales leading the way, up from +9% to +15% while orders rose from +8% to +13, but still well down on the second quarter when they had been +24% and +20% respectively.
Adam Marshall, the BCC’s director general, said businesses were coping with uncertainty “and looking to seize opportunities as they arise”. But he warned that a sharp increase in import prices was beginning to weigh on their costs and would lead to higher prices in the near future.
“Inflation has emerged in our survey as a rising concern for many businesses. Both manufacturing and services firms say they are under pressure, particularly from the rising cost of inputs, which is squeezing margins and may weaken future investment,” he said.
Suren Thiru, the lobby group’s head of economics, said: “While growth is likely to have remained on trend in the quarter, the UK’s growth prospects in the near term are expected to be more subdued, weighed down by rising inflation and the uncertainty surrounding Brexit.”
Construction companies also face rising import costs, according to a report from Markit/CIPS that found the weaker pound has driven up firms’ material costs to their highest in five and a half years.
The broadly upbeat survey of the construction sector found that growth was higher but remained vulnerable to uncertainty surrounding Britain’s ongoing relations with the European Union.
Housebuilding was the main driver behind construction growth again and grew at the fastest rate since January. Work on civil engineering projects also picked up at a robust pace while commercial construction increased only slightly.
Tim Moore, senior economist at IHS Markit and author of the survey, said: “All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much weaker than the cyclical peaks seen in 2014.”
Paul Trigg, construction specialist and assistant head of risk underwriting at the trade credit insurer Euler Hermes, was also cautious. “Business confidence across construction remains high. But the industry is yet to feel the full brunt of Brexit and there are concerns the current work pipeline will only carry contractors in the short term.
“Plummeting levels of foreign direct investment are expected to curb office development, which will hurt contractors as competition ramps up and squeezes low industry margins even further.”
This article was written by Phillip Inman Economics correspondent, for theguardian.com on Thursday 5th January 2017 00.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010