A booming service sector in Birmingham contrasts sharply with manufacturers struggling against soaring raw material prices, a report reveals today.
According to the first economic survey of 2007 by Birmingham Chamber of Commerce and Industry, there are worrying signs for manufacturers as demand, mainly from China and India, pushes up the cost of raw materials.
But the service sector, including lawyers, accountants, distributors, caterers, transport and communication firms, is enjoying increased exports resulting in growing confidence. Nearly three quarters of them (71 per cent) reported that profits had improved over the past 12 months. And eighty-one per cent said turnover would increase over the next 12 months, while 86 per cent felt profitability would improve.
However, the manufacturing sector remained static with only a slight increase in future export orders. Thirty-eight per cent of companies said sales over the past three months had increased, compared with 39 per cent in the last quarter of 2006, while orders were up from 36 per cent to 38 per cent.
The survey showed that the service sector also enjoyed improvements in home sales and orders. But the manufacturing sector remained stagnant.
BCI policy adviser Kasia Kurowska said: "These figures underline the changing business fortunes in Birmingham.
"Although there are some worrying signs in the manufacturing sector this quarter, Birmingham's economy has enjoyed a positive start to 2007 overall and business confidence remains strong.
"UK markets have stagnated and reflect the current ease in consumer spending. In contrast, we have seen a rise in exports in both sectors, especially in the service sector.
"Anecdotal evidence from business suggests that the increasing cost of raw materials has meant China, India and other competitors have had to put up prices of manufactured goods.
"In some cases this has closed the trading gap and is making UK businesses more competitive in export markets. But generally the rising cost of raw materials is adversely affecting manufacturers globally.
"Profitability appears to have strengthened for both sectors this quarter although this has not improved cash flow or investment.
"The cautious attitude of businesses could be due to recent interest rate rises and inflationary pressures continuing one per cent above target, which we have witnessed over the last quarter.
"Increasing competition continues to be a major concern for the service sector while a lack of skilled individuals and interest rate and inflationary pressures continue to be the greatest burdens for manufacturers."
Peter Mathews, president of the Midlands World Trade Forum, said: "These figures demonstrate that UK businesses must be more pro-active in selling abroad.
"While many thousands of companies are taking the initiative, many others are sitting back and only reacting to world pressures.
"But generally, I believe that we have now reached the bottom of a slow decline and we can look forward to improving fortunes."