Agents' summary of business conditions - 2022 Q4

We regularly publish a summary of reports compiled by our twelve regional Agents following discussions with at least 700 businesses across the UK every reporting period.
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Demand and output

Economic activity weakened modestly, as squeezed real incomes and uncertainty about the outlook weighed on consumer demand.

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Employment and pay

Employment intentions were flat and recruitment difficulties eased; nominal wage inflation ranged from 5% to 7%.

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Costs and prices

Input cost inflation remained high, but it was becoming more difficult for companies to raise prices.

Published on 15 December 2022


This publication summarises intelligence gathered between mid-October and late November. The Agents' scores published alongside this document generally represent developments over the past three months compared with a year ago.

Agency contacts reported a further modest weakening in economic activity as squeezed real household incomes and uncertainty about the outlook weighed on demand. The decline in growth was mainly consumer-led, but was also apparent in the manufacturing and construction sectors.

There were signs that the labour market has started to loosen, with companies putting hiring plans on hold, while recruitment difficulties eased slightly.

Pay settlements have averaged between 5% and 7% and the outlook for pay in 2023 is uncertain, with upside risks from high current inflation and increases in the National Living Wage and Real Living Wage, and downside risks from the loosening labour market and weakening demand.

Input cost inflation remained elevated, as falls in some commodity prices and freight costs have been offset by higher energy costs and the weak pound. And profit margins remained squeezed as firms’ price increases have not kept pace with rising costs.

Consumer spending

The squeeze on real household incomes continued to weigh on consumers’ demand for goods and services.

Supermarkets continued to report customers trading down to lower-priced products, though some reported sales being supported by people spending less on dining out.

Non-food retailers reported a sharp drop in demand for household goods, such as furniture, furnishings and appliances, resulting in some having excess stock, although contacts said demand for televisions was supported by the football World Cup tournament. There was widespread discounting for ‘Black Friday’ and retailers anticipated limited growth in sales volumes in the run-up to Christmas compared with a year ago.

Contacts in the hospitality sector said bookings over the Christmas holiday season looked solid, although customers were increasingly making decisions at the last minute. And contacts remained worried about the risk of a significant drop in bookings in the New Year, noting that demand was already shifting towards lower-priced venues. Demand for UK holidays remained steady, partly due to the weaker pound.

Business services

Businesses services firms reported moderate growth in revenues overall, mostly reflecting higher prices, while volume growth was muted.

Contacts in audit, IT, telecoms, consulting, insurance and recruitment reported robust growth in demand and revenues. Contacts in professional, financial and energy-related services reported strong demand from clients in the US and Middle East.

However, the weakness in consumer demand was increasingly affecting business services contacts that supply consumer-facing firms, such as those in wholesale or logistics and goods transportation.

And financial services contacts said tighter financial conditions, market volatility and weaker confidence, had weighed on corporate transaction activity, such as mergers and acquisitions, commercial property transactions and private equity deals. Spending on advertising also weakened.


Manufacturing output fell compared with a year ago, reflecting weak demand for retail and construction products.

The decline in output was largely consumer-led, with demand for household items such as soft furnishings, particularly weak. There were also reports of weaker production of some food items.

A sharp fall in spending on home renovations has affected production of construction-related goods. And demand for capital equipment weakened as higher energy costs and growing uncertainty weighted on investment.

By contrast, sectors that were less reliant on consumer spending, such as IT, defence and aerospace continued to report strong growth.

Contacts said that supply-chain problems continued to ease, though delivery times had not returned to pre-pandemic levels, and companies in the electronics and steel sectors continued to report significant shortages due to the war in Ukraine. High energy costs led to shutdowns and disruption among some energy-intensive firms. And agriculture contacts said avian flu was leading to shortages of eggs and poultry.

Demand for goods exports slowed, with growth flat compared with a year ago. Contacts said that while growth in exports to the US remained strong, exports to the EU had weakened.


Construction output fell as home renovations declined sharply and commercial development weakened.

Contacts said housing renovation continued to fall as households completed catch-up work following the pandemic and reined in spending due to cost of living concerns. Large housebuilders said output was being supported by strong order books, though smaller developers reported slowing activity.

Construction of industrial and office premises continued to weaken as rising cost inflation increased the risks around returns for developers. Contacts reported delays to public sector infrastructure projects as contractors sought to renegotiate pricing to cover rising costs.


Companies paused or reduced their investment plans due to weak demand, tighter financial conditions and uncertainty about the outlook. This was particularly the case for consumer services firms.

For companies that borrow to invest, higher funding costs had increased the uncertainty around investment plans by extending the payback period on projects. And rising costs continued to deter building-related investment.

A number of contacts said that they had less cash available for investment because they had been obliged to build up stocks in order to manage supply-chain disruption.

Many contacts reported that higher energy costs had incentivised investment in energy efficiency or power generation, though for some the increased cost had deterred investment.

And some consumer services firms and manufacturers continued to invest in automation to counter labour supply constraints.

Corporate financing conditions

Credit availability tightened as credit risk increased due to the weaker economic outlook. Demand for credit also fell.

Bank credit generally remained available for large firms, and lower-risk borrowers, such as profitable companies with lower debt levels. But the availability of market finance remained tight, especially for non-investment grade firms.

Contacts said the availability of credit had tightened for small and medium-sized enterprises, and that banks were requiring greater security against new lending or were amending conditions for existing loans.

Demand for credit also fell, as higher interest rates encouraged firms to reduce debt and build cash buffers. However, demand for working capital finance remained strong.

Insolvencies continued to rise – albeit from a low base – and trade credit insurance tightened for companies in more vulnerable sectors, such as retail, leisure and construction.

Employment and pay

Companies expect to keep headcount flat over the coming year, suggesting that the labour market has started to loosen.

Economic uncertainty and concerns about weakening demand have led many firms to implement hiring freezes, leave vacancies unfilled or let temporary contracts expire. A small minority of companies reported making redundancies. Some contacts said that staff turnover had decreased.

However, in sectors where revenues continue to grow, such as business services, a significant number of firms said they expected to increase headcount.

Recruitment difficulties eased slightly – reflecting weaker demand for labour – but remained elevated, especially in professional services, IT, engineering, catering and care services. There were only a few reports of workers deciding to return from inactivity.

Pay settlements ranged between 5% and 7%, and many contacts said they had made one-off payments to help offset rising living costs. Companies said the outlook for pay settlements in 2023 was uncertain. There were upside risks from current inflation, the upcoming increase in the National Living Wage and Real Living Wage and union pay bargaining, and downside risks from weaker demand, affordability constraints for firms and a weaker labour market.

Costs and prices

Input cost inflation remained elevated, but it was becoming more difficult for companies to increase prices, so profit margins continued to be squeezed.

High energy costs and the weaker pound kept input cost inflation high, despite falls in some commodity and freight prices.

Energy prices increased for companies that had not hedged or whose contracts expired. Although contacts said the Government's Energy Bill Relief Scheme had helped, many were concerned about the risk of a further sharp rise in energy costs once the scheme ends in March 2023.

In manufacturing, output price inflation moderated but remained high as many companies increased prices to try to keep pace with rising input costs. Business services price inflation remained elevated, reflecting higher pay, fuel and energy costs.

Retailers also reported rising input cost inflation, with food price inflation of around 15% and clothing and footwear price inflation of almost 10%. Consumer services contacts reported rising input costs too, driven particularly by energy, food and pay. However, contacts were not able to pass on these increases to consumers in full. As a result, profit margins remained squeezed.

Property markets

Housing market activity continued to cool, and development and transaction activity for commercial property remained weak.


Contacts said higher borrowing costs and concerns about affordability had weighed significantly on demand from first-time buyers. House viewings had fallen sharply in recent weeks and most offers were now below the asking price, as the supply of homes for sale increased faster than demand. Contacts expect the market to continue to weaken next year.

The supply of rental properties fell while demand increased, boosting rent inflation.

Commercial real estate

Contacts said that higher borrowing costs, financial market volatility and high construction costs had weighed on investor demand for commercial property in recent months. As a result, values had fallen for all types of commercial property.

Tenant demand for office space continued to fall, though demand for prime office space remained high. Occupancy rates for retail property held steady and demand for industrial property continued to outstrip supply.

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This page was last updated 31 January 2023