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.
- Confidence in the South West increased slightly in Q3 2024 to +14.1 and is now close to the UK average (+14.4).
- Companies in the region reported a modest uplift in domestic sales growth, however, the rate of expansion is expected to ease slightly over the next year.
- Meanwhile, exports growth slowed in Q3 2024, but businesses expect they will grow in line with the historical average in the coming year.
- Input price inflation in the South West slowed and companies expect it will finally drop below the historical average next year.
- Businesses in the region increased employment by nearly double the historical average pace in the year to Q3 2024, however, growth is projected to slow.
- Regulatory requirements and competition in the marketplace were the most prevalent rising challenges for companies in the region but tax concerns also rose sharply.
- The investment outlook is expected to improve in the region with businesses planning to increase growth in capital investment and R&D budgets.
Business confidence in the South West
Business sentiment in the South West improved slightly in Q3 2024, as the Business Confidence Index rose from +12.9 in Q2 2024 to +14.1. While this rise left confidence over three times the region’s historical average (+4.3), the South West remained just below the national average (+14.4).
Domestic sales and exports growth
Businesses in the South West reported that annual domestic sales growth increased to 4.7% in Q3 2024, exceeding both the historical average (3.1%) and the national average (3.8%). Unlike most other regions, companies in the South West expect domestic sales growth to ease slightly over the next 12 months to 4.4%, only stronger than Scotland and Yorkshire & Humberside. Pessimistic domestic sales expectations within the Manufacturing & Engineering sector are likely a contributing factor to the weak outlook within the region due to a relatively large concentration of the sector located in the South West.
Export growth in the region slowed for the second successive quarter in Q3 2024, dropping below the national average (2.7%), to 2.3%. Companies in the South West expect a modest improvement in export growth over the coming year to 2.7%, equaling the historical average, however, they still expect the rate to lag behind the 4.0% growth forecast nationally.
Input price, selling prices and profits growth
Following an increase in the previous quarter, input price inflation in the South West slowed in Q3 2024, to 3.9%. This was among the smallest rises of any UK region. Companies in the region are expecting further moderation in the coming year, with input price inflation projected to fall below the historical average (2.8%), to 2.1%.
As input cost pressures eased, companies in the South West significantly reduced the rate at which they raised their selling prices to just 1.6% in the year to Q3 2024. While this growth was in line with the historical average (1.6%), it was the lowest increase of any UK region and the smallest rise in three years. Despite planning a modest increase in the rate of inflation in the coming 12 months to 1.9%, businesses in the South West anticipate one of the lowest price increases in the UK, only above Yorkshire & Humberside.
The decline in input cost inflation alongside above-average domestic sales growth facilitated profits growth of 3.5% over the year to Q3 2024. This growth was stronger than both the South West historical average (3.1%) and the 2.8% rate reported nationally. Businesses in the region anticipate a further uplift in profits growth in the year ahead, to 4.9%, However, this projection is lower than the national average (5.1%), likely reflecting relatively weak sales growth expectations and comparatively low increases in selling prices in the South West in the coming year.
Labour market
Companies in the South West stepped up the pace at which they increased their staff levels in the year to Q3 2024 to 2.7%, almost doubling the historical average (1.4%) and the region reported one of the strongest employment expansions in the UK, only slower than the North East. However, employment growth is expected to slow to 1.9% over the next 12 months, behind the projected UK average of 2.1%.
Salary growth slowed for the second consecutive quarter in Q3 2024 to 3.7%, rising broadly in line with the national average (3.6%). This growth will continue to ease over the coming year, with businesses in the South West planning to increase salaries by 2.8%, edging closer to the 2.2% historical average.
Business challenges
Regulatory requirements continued to be the most widespread growing issue for companies in the South West, after the number of companies reporting the challenge increased to 40% in Q3 2024. This proportion of businesses matched both the historical and national average. There was a rise in the proportion of businesses reporting competition in the marketplace compared to the previous quarter, with 36% of companies reporting it as a growing issue and making it the second most prevalent challenge for businesses in the South West.
Citations for customer demand remained unchanged from the previous quarter at 34%, but there was a notable rebound in the proportion of companies reporting the tax burden as a rising challenge in Q3 2024, to 31%, and almost double the historical average (16%).
Investment
Businesses in the South West cut capital investment growth for the second quarter in a row and recorded the weakest growth of UK regions, at just 1.3%. However, businesses are planning to nearly double growth next year to 2.5%, outpacing all other regions and climbing above the 2.0% historical average.
R&D budget growth increased marginally in the South West, to 1.3% in Q3 2024, but remained below the national average of 1.7%. Over the next year, businesses in the region expect to increase budgets by 1.9%, only behind the West Midlands, however, this projection is still marginally below the historical average (2.1%).
