The latest national Business Confidence Monitor (BCM) for Q3 2024 shows a slight drop in sentiment. However, confidence remains high as businesses continue to expect sales and profits growth to improve significantly in the year ahead.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 15 July to 20 September 2024.
- Sentiment rose in the North East for the fourth consecutive quarter as the Business Confidence Index rose to +20.0 and remains ahead of the UK average.
- Domestic sales growth improved significantly in Q3 2024, with the region recording the largest increase in the UK. Exports also improved and businesses project strong growth for both in the coming year.
- Input price inflation increased compared to the previous quarter, as did salary inflation, as businesses increased their selling prices to one of the highest rates in the UK.
- The North East recorded the sharpest profits growth of any UK region in the year to Q3 2024 and a similar expansion is expected for the coming year.
- Regulatory requirements were the most widely reported growing issue for businesses in the region. Customer demand and labour market concerns are also prevalent.
- Companies in the North East plan to moderate capital expenditure growth slightly over the next 12 months. However, businesses significantly reduced their R&D spending growth, with similar plans for the coming year.
Business confidence in the North East
Sentiment improved in the North East for the fourth consecutive quarter in Q3 2024. The Business Confidence Index reached its highest point since Q4 2021, rising from +17.8 in the previous quarter to +20.0 and sitting comfortably above both the UK score (+14.4) and the region’s historical average (+6.6).
Domestic sales and exports growth
Strong domestic sales growth in the year to Q3 2024 underpinned the sustained rise in confidence for businesses in the North East. Domestic sales growth improved for the second quarter in a row, rising to 6.9%, more than double the historical average (3.1%) and outpacing all other UK regions. Businesses in the region predict a slight moderation to 6.3% for the year ahead, but the North East still has the joint-highest expectations in the UK, alongside companies in Wales.
Businesses in the North East also reported the fourth consecutive quarterly uplift in annual exports growth in Q3 2024, rising above the historical average (2.5%) and matching the national average (2.7%). Businesses in the region are among the most optimistic in the UK, expecting a significant uplift in exports growth over the coming year, to 4.8%, outpacing the 4.0% growth projected nationally.
Business challenges
Regulatory requirements remain the most widespread growing challenge in the North East, cited by 41% of companies in the region, a slight increase from Q2 2024. This level of concern was marginally above both the regional historical average (38%) and the national average (40%). Despite the uplift in sales in the year to Q3 2024, customer demand and competition in the marketplace remain prevalent rising issues for businesses in the region, with 38% and 32% of companies reporting them respectively in Q3 2024.
Labour market concerns are also highly prominent in the North East compared to other UK regions. The availability of both management (24%) and non-management skills (37%) are cited more by businesses in the North East than in any other region, while 30% of companies reported concerns about staff turnover, behind only the East Midlands. These trends could be linked to the concerns of the Construction and Manufacturing & Engineering sectors where labour market issues continued to be widely reported in Q3 2024.
Labour market
Despite the prominent labour market concerns, the North East recorded rapid employment growth of 4.1% in the year to Q3 2024, the fastest annual employment increase in the UK and over three times the historical average for the region (1.3%). While companies expect significant moderation over the next 12 months, anticipated growth of 3.2% is higher than any other region.
Businesses in the North East also recorded one of the largest uplifts in wages growth in Q3 2024, at 4.2%. This increase was double the historical average (2.1%) and only below the East Midlands. This rise is likely tied to the robust employment growth in the region, however, the strong growth in salaries reported by the Manufacturing & Engineering sector may also be a contributing factor. Growth is expected to slow to 3.2% in the year ahead, however, this projection is among the fastest rises in the UK, outpacing the national average of 2.9%.
Input price, selling prices and profits growth
Input price pressures ticked up in Q3 2024 as annual cost inflation rose by 4.4% for businesses in the North East, marginally above the national average of 4.2%. Businesses foresee these price pressures dissipating over the next 12 months and expect input price inflation to drop below its historical average (2.7%) to 2.5%.
Companies in the North East appear to have passed the uplift in input price inflation onto their customers by raising their selling prices by 3.2% in Q3 2024, up from 2.9% in Q2 2024. The increase was among the sharpest rises in the UK and nearly double the historical average (1.7%). Businesses expect to ease the rate of selling price growth over the coming year to 2.1%, broadly in line with the 2.2% increase projected for the UK as a whole.
Robust sales growth and increased selling prices offset the rise in input costs, resulting in strong profits growth of 5.4% for businesses in the North East. The uplift in profits was significantly ahead of all other UK regions and nearly double the national average (2.8%). Unlike most other regions, companies in the North East expect profits will rise at a similar rate over the coming year at 5.3% and significantly above the historical average of 2.9%.
Investment
Businesses in the North East raised capital investment spending by 2.1% in Q3 2024. While this is an improvement from the 1.8% recorded in the previous quarter, it remains below the historical average of 2.3%. Companies plan to reduce the rate of expansion slightly over the next year, with an increase of 1.8% projected over the next 12 months, marginally below the UK average (1.9%).
At the same time, growth in R&D expenditure eased significantly in Q3 2024, slowing to 0.8%. This rise was significantly lower than both the historical average (1.9%) and the national average (1.7%). Little change is expected over the next year, with companies in the region planning one of the slowest expansions in the UK, at just 0.9%, only above the East Midlands.
