The boss of the East Midland Chamber has welcomed latest official figures showing growth in the economy, but warned things could continue to get worse before they get better.
With the cost of living and cost of doing business weighing heavily on consumers and industry leaders alike, chamber chief executive Scott Knowles said cutting VAT could be one way for the next PM to stimulate growth.
The UK economy staged a better-than-expected rebound in May as demand for health services and holidays offset a cost-of-living hit to spending in shops according to the Office for National Statistics.
It said gross domestic product (GDP) grew 0.5 per cent, rebounding from an upwardly revised 0.2 per cent drop in April, against the 0.3 per cent decline in its initial estimation. Experts had expected the economy to remain flat in May.
Mr Knowles said it was possible the May bounce-back would be short-lived as spending slowed across the economy in the light of the highest inflation in 40 years.
He said: “The GDP growth figure of 0.5% in May – following a slight contraction in the previous month – is welcome news and is particularly pleasing to see growth in sectors that are significant to the East Midlands economy, such as manufacturing, construction and road haulage.
“The rebound of the travel sector is also a huge sign of progress. Not only is East Midlands Airport a vital asset to our region’s economy and communities, but fully opening borders is a step in the right direction for internationally-focused businesses that are keen to forge global connections.
“However, these figures mask serious underlying concerns among businesses that are affecting their confidence to invest. In our latest Quarterly Economic Survey for Q2 2022, only a net 8 per cent of companies in the region expected profitability to increase over the coming year, down from a net 31 per cent at the start of the year.
“A net 42 per cent of those surveyed during the second quarter of 2022 anticipate turnover to improve, down from a net 62 per cent in the previous quarter.
“This nosedive in confidence stems from persistent price pressures for energy, raw materials, fuel and people driven by spiralling inflation, meaning six in 10 (62 per cent) businesses feel they will be forced to raise their own prices in the coming months.
“What this means is many firms don’t feel they have the headroom to make the investment in plant, machinery and people to make the productivity gains that will ultimately turn the tide and enable sustainable growth in the long term.
“Cutting VAT on businesses energy bills to 5 per cent would go some way to easing the squeeze on firms’ cashflow and give them some room for manoeuvre.”
