Herefordshire Area Council September 2022

Transport & Logistics

Warehouses are full across the two counties.  Transport fuel costs have gone down gradually and there no longer seems to be a driver crisis, however the availability of vehicles is still an issue.  The biggest issue is that the number of contracts are falling and vacancies are not presently being filled due to uncertainty in the market place.  This impacts budget planning and forecasting.

 

Banking

The market is currently volatile.  Today’s cost of a 3-year fixed rate is 5.83% before the margin is added, but it was 6.13% only yesterday.  This is very different to how things looked only three months ago and shows how quickly things can fluctuate.  Generally, across the client base there is not too much concern but there is an awareness of difficulties that may be around the corner.  There have been some concerns relating to power outages.  Shipping costs seem to be reducing but some house sales are being cancelled with one site having 17 cancellations on the same day.

 

Manufacturing

Volumes are still, by and large, stronger than expected.  Thye are down on last year but that was anticipated.  The budget process for 2023/24 looks rocky.  Materials are more readily available but pricing is still an issue.  There are certainly challenging times ahead, with some large construction projects not starting when they were supposed to.  Renewables have seen business grow and are undertaking some large-scale projects, but there is some uncertainty about the government’s reaction to renewable energy.  The Ukraine operation is still running, and Russian business has been sold.  Some reconstruction is beginning in certain areas.

 

Defence Services

 The Defence sector remains a mixed bag.  On one hand the Ukraine crisis has created opportunities across the area, and most companies will have benefitted from new business, specifically orders for equipment to be exported to Ukraine,  Small, agile companies have been able to scan the market and source specific requirements, and large companies have benefitted from increased Defence spending and associated sector confide3nce (SoS for Defence has secured a significant uplift in MOD spending, and BAEs share price has nearly doubled since February!) There are negatives also: supply chains remain disrupted, lead times continue to increase, and shipping costs vary significantly.  The exchange Rate fluctuations remain a concern, particularly with the USD.  Over the last few months there has been a noticeable increase in sector-related support activity, with the return of well-attended events, briefings, exhibitions, international shows etc.

 

Further Education

The college seems representative of the sector and are on target to enrol 9000+ students in total.  There are some odd patterns emerging with younger age student numbers dropping – this is possibly due to teacher assessed grades during the pandemic having a knock-on effect on the types of courses students undertake.  Adult full-time student numbers are also falling, although this is to be expected given the current economic crisis with more people needing to work.  This does lead to concerns regarding the future and potential skills gaps in the job market.  The college is above target for apprenticeships.  Energy bills are a concern and have risen from £600,000 to £900,000 for the lates bills on a fixed rate tariff.  However, one organisation has seen energy bills rise from £700,000 to over £3 million.  Further education is not protected in DfE budgets so the allocation of funds for each student is not increasing with costs.  The college is waiting to see what effect this will have.

The college is pleased to be working on the LSIP.  This is potentially a big change but could be very helpful.  There is a legal duty on education providers to pay heed to this and ensure that skills gaps are looked into, but we do have the opportunity to identify perceived skills gaps (e.g. in the healthcare area)A new project has been approved to build a low carbon energy technology training facility centre at Holme Lacey to allow installers to train.  The college have also been successful with a LEP energy fund bid.

 

Legal

The biggest pressure is still with recruitment and staffing and in the current market, recruitment is taking a long time.  Out of area home working and higher offers are all stalling the system.  All firms are in the same position so buy back is continuing as are bidding wars to recruit and retain staff.  The cost of living crisis is having a big impact and some employees are struggling, with this placing pressure on costs.  Employee wellbeing and sickness is also an issue, with particular regard to mental health wellbeing.  There is currently less ‘going the extra mile’ for your employer.  From a positive perspective there is currently a lot of engagement from people wanting a career in law.  More people are wanting to take alternative education routes, through apprenticeships and Cilex.  This still results in a long lead in time but does cut qualification from 7 to 5 years.  Employment work is booming across the majority of the sector.  The housing and mortgage markets are seeing a downturn in legal work connected with house purchases.

 

Manufacturing

There are challenges with materials issues and although new enquiries have declined the existing client base is strong. Changes in the value of sterling has had both positive and negative effects with the UAE showing very strongly with regard to sales, compared to a slowing down in Europe.  The recruitment market is currently very competitive.

 

Further Education

There has been a new cohort of students in during September and more coming in, in January 2023.  There is a new facility which has opened and we are now able to attract international students.  Recruitment has not been difficult as we are quite new and people are passionate.  Energy costs are becoming a cause for concern.

 

Distribution

Nickel trading has been relatively stable since the events of March.  However, the impact of the current economic climate on exchange rates means that raw material costs are increasing even further as Nickel, Cobalt, magnesium, Chromium and others are all traded in US$.  Most manufacturers are now quoting with an energy surcharge added at the time of shipment.  This means that there is less forward clarity on costs of purchases.  As with everyone else, energy costs are a significant issue at present.  Where energy surcharges are not in effect we are seeing price increases between 40% and 65% to cover this.  Political uncertainty over the summer, combined with recent government action has also had negative impact on the euro exchange rate; this means goods we purchase from our sister companies in Europe have increased significantly.  Manufacturing lead times for nickel alloy products are going out, with many now 12 months or more (historically they’ve been around 16-24 weeks).  This, combined with the energy situation and raw material costs, is making replenishing stocks extremely difficult.  I believe that the government need to extend energy cost support for businesses, especially SMEs, beyond the 6 months recently announced.  Somehow they also need to take action to stabilise the energy market over a longer period.

 

Agriculture/Hospitality

Harvesting is progressing or in some cases completed.  Apples have been positive but hops less so.  There have been big and ongoing issues with recruitment due to the limited numbers of overseas workers. Increased fuel costs and rising interest rates will lead to food inflation.  In some cases, cancellation of orders has led to produce rotting on the trees.

The cost of living crisis is having a considerable effect on hospitality. Pubs are struggling with regards to costs and some chain pubs are selling sites.  Personally, turnover is going up and the brand is strong.  The Christmas period may see an up-turn but the new year is expected to be very difficult.  Proposed changes to alcohol duty tariffs from August 2023 will be dependent on the ABV of the product.  The lower the ABV the lower the duty.  Again, food inflation will lead to process being passed on to consumers. RE suggested that the duty situation was something that should be flagged at BCC level.

 

Engineering/Construction

Material prices have softened but the sector is expecting a second wave of increases.  Energy process have increased significantly and other companies are also seeing an increase in process.  People are being advised not to sign contracts due to the uncertainty over government support being provided to businesses.  Confidence within the marketplace is not good and anyone with long lead times are okay for the next 12 months but may find things worsening quickly.  Companies are worried about losing staff.  Personally the business has seen a drop off in August sales and investment in automation has slowed as people are concerned about pricing and affordability.  Traditional engineering is currently struggling.

 

Pharmaceuticals

Mixed market conditions with supply chain shortages, delayed delivery and significant price increases which change week on week.  Venture capital still investing in companies to bring medicines to market.  Weak sterling increasing input costs but also making UK more competitive particularly for USA and to a lesser extent Europe.  Electric and gas pricing a concern for the future with significant increases past the current Government intervention timeline.  Recruitment more positive for most roles except very specialised science.  Increased demonstrations and other activity throughout the UK sector but also for local food manufacturers.