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.
- Business Confidence in the North West dipped below its historical average after a drop in Q3 2024, with confidence in key sectors likely weighing on sentiment.
- Despite the overall fall in confidence, domestic sales growth expanded over two consecutive quarters, exceeding its historical average with further improvement expected. Flagging exports growth is also projected to improve.
- Input price inflation eased slightly but remains significantly above its historical average, although companies expect the slowdown in growth will continue.
- The rate of salary growth also slowed but remains among the highest rates in the UK, although companies anticipate it will ease further.
- Businesses in the region reported the second highest profits growth in the UK behind the North East, despite growth easing slightly in the previous quarter.
- Regulatory requirements are now the most common challenge for businesses, but the tax burden joined competition in the marketplace and customer demand among the other most prevalent concerns.
- Capital investment is anticipated to increase over the next 12 months but will remain below the historical average.
Business confidence in the North West
Business confidence in the North West fell for the second quarter in a row in Q3 2024, dropping from +18.0 in Q2 2024 to +5.7 and dipping just below its historical average (+6.0). Confidence in the region is now significantly below the national average (+14.4) and is the second lowest score in the UK, only ahead of Yorkshire & Humberside. The fall in sentiment is likely attributed to lower confidence in certain sectors in the region, with the decline in confidence in the Manufacturing & Engineering sector likely most significant given its local importance.
Domestic sales and exports growth
Despite falling confidence in the region, the rate of domestic sales growth has increased over the last two consecutive quarters, reaching 4.3% in Q3 2024 and exceeding both the national average (3.8%) and the historical average for the region (3.1%). Companies anticipate a further increase in the growth rate over the next 12 months, to 5.1%.
Exports growth remained broadly stable in Q3 2024 at 2.3%, following a large increase in the previous quarter. However, it remains below the national average (2.7%) and the regional historical average (2.6%). It is likely that Manufacturing & Engineering exports growth, which expanded by just 0.6% in the quarter nationally, is weighing on overall performance in the region. However, companies in the sector anticipate that this will improve in the coming year, with growth increasing to 3.2%, and businesses across all sectors in the North West project the same rate of growth for next year (3.2%).
Business challenges
Regulatory requirements are now cited as the most prominent growing challenge in the North West region, with 44% of businesses reporting them as an issue, marginally above the historical average. Competition in the marketplace and customer demand continue to be prominent concerns in the region, although the latter was down from the previous quarter with the drop likely linked to the increase in domestic sales in the region in recent periods.
Like many regions, businesses in the North West are increasingly reporting that the tax burden is a growing challenge. Indeed, the proportion of companies in the North West citing tax matched the historical high in Q3 2024 at 30%, double the historical norm (15%).
Labour market
The rate of employment growth in the North West had been on a downward trend in recent quarters, but growth increased in Q3 2024 to 1.8%, bringing it into line with the national average (1.8%) and remaining ahead of the historical average in the region (1.2%). Businesses anticipate that employment growth will rise in the year ahead to meet stronger sales demand and they project growth of 2.2% next year, slightly faster than UK-wide expectations (2.1%).
Salaries grew by 3.9% in the year to Q3 2024, a marked decline on the rate reported by North West businesses in the previous quarter (4.4%). However, wages growth remains high by historical standards in the region (2.1%). Companies expect salary growth to continue to move towards its historical average, projecting growth of 2.9% for the year ahead which is in line with the national projection (2.9%).
There are also signs that labour market challenges are easing in the region. After a drop in Q3 2024, the proportion of businesses reporting staff turnover is now consistent with the national average and close to the historical regional average. In addition, businesses reporting the availability of non-management skills as an issue dipped in the most recent quarter and are now below the national average. However, the availability of management skills remains a relatively prominent challenge, cited by about a fifth of businesses in the region in Q3 2024.
Input and selling prices, and profits growth
Input price inflation continued to slow in Q3 2024 and, at 3.9%, was marginally below the national average (4.2%) but remained significantly above the historical average (2.6%). The slowdown in input price inflation is expected to continue over the next 12 months and the rate is anticipated to dip below the historical average to 2.3%.
Meanwhile, selling price growth also continued to slow, reaching 2.3% in Q3 2024 and businesses anticipate that this trend will also persist over the next 12 months, projecting selling prices will rise by 2.0% next year. However, this projected rate of growth is still above the historical average (1.3%).
Despite the falling trends, with input price inflation continuing to expand at a faster rate than selling prices, businesses in the North West reported a slight drop in profits growth compared to the previous quarter. Profits growth dipped to 3.5% in Q3 2024, down from 4.2% in Q2 2024 but, despite this, the region still recorded one of the strongest expansions in the UK, behind only the North East. Companies in the North West project that profits growth will rise significantly to 5.8% over the next 12 months, double the historical average rate (2.9%).
Investment
Capital investment growth was disappointing in the year to Q3 2024, decreasing to 1.6% from 2.4% reported in the previous quarter. This outturn was below both the national average (2.4%) and the regional historical norm (2.1%). However, businesses expect a somewhat more positive performance over the next year, with capital investment growth expected to increase to 1.9% and match the national average.
The growth in R&D budgets was more positive in Q3 2024, increasing by 2.5%, above the rate experienced by the UK as a whole (1.7%). However, the outlook for growth over the next 12 months is not so positive, with businesses in the North West planning growth of 0.9%, half the historical average rate (1.8%) and trailing the projected UK average (1.2%).
