Q4: Business confidence in the North East sinks into negative territory.
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 14 October to 13 December 2024.
- Sentiment in the North East deteriorated in Q4 2024 and the Business Confidence Index dropped to -5.4, falling below both the historical and UK averages.
- Domestic sales growth eased significantly while exports growth stalled in the year to Q4 2024, but both are expected to improve in the coming year.
- Regulatory requirements and the tax burden were the most-cited growing challenges in the region, with the latter reaching a survey-record high in Q4 2024.
- Input price inflation softened compared to the previous quarter, as did wages growth, and these slowdowns were reflected in lower selling price inflation.
- However, profits growth slowed significantly in the North East, dropping marginally below the national average.
- After a strong uplift in the year to Q4 2024, businesses in the North East plan to ease capital expenditure growth significantly in the year ahead.
Business confidence in North East
After improving for four consecutive quarters to reach +20.0 in the previous quarter, sentiment in the North East plummeted to its lowest score since Q4 2022. The Business Confidence Index dropped into negative territory to -5.4 in Q4 2024, below both the UK average score (+0.2) and the region’s historical average (+6.5). While the tax rises announced in the Budget undoubtably contributed to this drop in sentiment, companies in the region also reported a significant slowdown in demand, as both annual domestic sales and exports growth slowed compared to the previous quarter.
Domestic sales and exports growth
Companies in the North East reported that annual domestic sales growth eased significantly compared to Q3 2024, dropping from 6.9% to 3.6%. However, despite this slowdown, growth remained above both the historical (3.1%) and national averages (3.2%). Businesses in the region expect an uplift in domestic sales growth over the coming year, with an increase of 4.7% anticipated. However, this increase is marginally below the 4.9% growth projected nationally.
Exports growth stalled in Q4 2024, with businesses in the region reporting growth of just 0.1%, the most sluggish increase since Q2 2021 and the weakest reported in the UK. The slowdown in exports sales growth in the Energy, Water & Mining sector is likely a contributing factor in the region’s overall weak performance. Companies anticipate a significant uplift in exports growth over the next 12 months, to 3.4%, rising above the historical average (2.5%) but the forecast for the region is lower than the average expected nationally (4.0%).
Business challenges
The proportion of companies citing regulatory requirements as a rising challenge eased compared to the previous quarter, to 37%. While these issues were less prominent in the region compared to the national average (40%), they were still the joint-most widespread growing concern for businesses in the North East in Q4 2024. At the same time, the tax rises announced in the Autumn Budget have increased concerns about the tax burden among companies in the region, with the proportion of citations nearly doubling from the previous quarter to 37%, a survey-high record, though it was a less prominent concern than reported in most other UK regions.
Customer demand is the next most prevalent rising challenge for businesses in the region, although it has eased somewhat from the previous quarter to 30%, while late payments from customers increased as a concern, rising to 25% and broadly in line with the historical norm (23%).
Labour market
After rising in each of the three previous quarters, annual employment growth slowed significantly in Q4 2024, dropping to 1.4% from 4.1% reported in the previous quarter. While the growth recorded was consistent with the historical average (1.3%), the region lagged the growth reported nationally (1.7%). Companies in the region plan to marginally increase the rate at which they raise their staffing levels over the next 12 months, to 1.8%, slightly below the 1.9% growth anticipated UK-wide.
Somewhat sluggish employment growth appears to have translated into a decline in the rate of salary inflation in the year to Q4 2024, to 2.9% from 4.2% previously. While still markedly above the region’s historical average (2.2%), it was the joint weakest rise in the UK. However, while businesses in the North East expect the same rate of wage inflation over the year ahead, companies in most other regions expect salary increases to ease further, with growth of 2.7% anticipated on average.
While weaker sales growth may have impacted the recruitment plans for some businesses in the region, labour market challenges including the availability of non-management skills (25%) and staff turnover (28%) remain high compared to the regional historical average and may also be limiting the rate of employment growth.
Input and selling prices, and profits growth
Inflationary pressures eased slightly in Q4 2024, as annual input cost growth slowed to 3.9%, only marginally above the national average of 3.7%. Companies in the region expect inflation to continue on its downward trajectory over the coming year and drop below the historical average (2.7%) to 2.5%, with only businesses in the South East and West Midlands anticipating lower cost increases.
The slowdown in input cost inflation helped businesses to reduce the pace at which they raised their selling prices, as annual sales price growth dropped significantly from 3.2% to 1.7% in Q4 2024. This growth was in line with the region’s historical average and was the lowest of any region in the UK. Businesses plan to moderate their selling price increases further over the coming year to 1.5%, dropping below the historical average and the lowest rate expected across the UK.
Weaker domestic sales and exports growth, together with lower sales price growth, had a detrimental impact on profits growth in the region, as growth softened from 5.4% in Q3 2024, to 3.2% in Q4 2024. Businesses in the North East still outperformed their historical average (2.9%) in the year to Q4 2024, however, they were slightly behind the growth reported in the UK as a whole (3.2%). Despite expecting an uptick in profits growth over the next 12 months, the anticipated increase of 4.2% is among the lowest rates of growth projected for next year, markedly below the national average of 5.0%.
Investment
Investment has been buoyant in the North East and companies lifted their annual capital investment expenditure for the second consecutive quarter in Q4 2024, with a rise of 3.1%, and above the regional historical average of 2.3%. However, businesses expect to moderate their capital expenditure to just 1.5% in the coming year, with investment growth in the region projected to lag the 1.8% rise forecast nationally.
Companies in the region slightly increased their R&D budgets in Q4 2024, with growth of 0.9% in the year, but it remained below both the historical (1.9%) and national averages (1.6%). This comparatively sluggish performance is expected to continue, with companies planning to maintain growth at 0.9% over the coming year compared to the UK-wide projection of 1.4%.