Q4: Confidence among businesses in the South West is the lowest in the UK.
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
- Confidence in the South West fell significantly in Q4 2024 to -15.5, amid slowing domestic and export sales growth.
- Sentiment among businesses in the region is the lowest in the UK, with companies forecasting weaker sales and exports growth for next year than most other regions.
- Input price inflation also picked up in Q4 2024, but companies expect it to ease to match the historical average next year.
- Meanwhile, employment growth slowed but continued to grow ahead of the historical norm, a trend which is projected to continue in the coming year.
- The tax burden and regulatory requirements were the most prevalent rising challenges for companies in the region.
- The capital investment outlook is expected to deteriorate in the region, with businesses planning to reduce growth in capital investment next year, but companies expect to increase growth in their R&D budgets.
Business confidence in the South West
Business sentiment in the South West declined in Q4 2024, as the Business Confidence Index dropped from +14.1 in Q3 2024 to -15.5, the lowest reading across all UK regions and nations. The fall left regional confidence at its lowest point since Q3 2022 and significantly below both its historical average (+4.1) and the national average (+0.2).
Domestic sales and exports growth
Consistent with the low confidence levels recorded, businesses in the South West reported that annual domestic sales growth slowed to 2.4% in Q4 2024, underperforming both the historical average (3.1%) and the national average (3.2%). However, while companies in the South West anticipate domestic sales growth to improve over the next 12 months to 4.4%, the projected rate is lower than all regions apart from the West Midlands. Relatively weak domestic sales expectations in the Manufacturing & Engineering sector are likely a contributing factor to the outlook due to the relatively large concentration of the sector in the region.
Exports growth slowed for the third successive quarter in Q4 2024, dropping below the national average (2.8%), to 1.7%. Companies in the South West expect a modest improvement in exports growth over the coming year to 2.9%, slightly stronger than the historical average, however, the projected rate is lower than the 4.0% growth forecast nationally and above only expectations in Yorkshire & Humber and Wales.
Input and selling prices, and profits growth
The rate of input price inflation reported by businesses in the region has been generally trending down over recent quarters, but ticked up in Q4 2024, to 4.3%. This was among the highest rises of any UK regions, only second to Wales (5.1%). However, companies expect input price growth to ease over the year ahead to match the historical average (2.8%).
Selling prices in the region also picked up to 3.2% in the year to Q4 2024. This growth was twice the historical average (1.6%), and the highest of any UK region. Over the coming 12 months, companies plan to increase their selling prices by 2.5%, one of the highest rates expected in the UK, second only to the North West.
Relatively weak sales growth and rising input costs impacted profits growth in the year to Q4 2024. At 1.7%, profits growth was lower than both the South West historical average (3.1%) and the 3.3% rate reported nationally. In the year ahead, businesses in the region anticipate an uplift in profits growth, to 3.4%. However, this projection is weaker than the national average (5.0%), likely reflecting the relatively weak sales growth outlook in the South West in the coming year.
Labour market
The survey suggests companies in the South West slowed the pace of recruitment growth in the year to Q4 2024. However, at 1.7%, annual employment growth was slightly above the historical average (1.5%) and matched the UK average in the quarter. However, employment growth is expected to slow to 1.6% over the next 12 months, behind the projected UK average of 1.9%.
Despite easing slightly in Q3 2024, businesses in the South West reported that salaries grew more quickly than elsewhere, rising by 3.6% in Q4 2024, compared to the national average of 3.1%. However, wages are expected to grow more slowly next year with a projected rise of 2.6%, edging closer to the 2.2% historical average and the slowest salary inflation forecast of any region.
Business challenges
Following the tax rises in the Autumn Budget, the tax burden is now the most widespread growing issue for companies in the South West, after the proportion of companies reporting the challenge increased to 41% in Q4 2024. This marks a survey historical high and is significantly above the historical average of 16%. Regulatory requirements continue to be a pressing concern for companies in the South West, reported by 38% of companies as a growing issue and the second most prevalent challenge for businesses.
Customer demand is the third most prevalent growing concern for businesses but, at 32%, remains below the historical average (39%). Similarly, 28% of companies reported competition in the marketplace as a growing challenge in Q4 2024, the next most common challenge for businesses in the region, but below the historical norm of 34%.
Investment
Businesses in the South West increased their capital investment growth in Q4 2024 but still reported one of the weakest growth rates of UK regions, at just 2.1%. However, businesses are planning to lower investment growth next year to 1.5%, below the historical average of 1.9%.
R&D budget growth eased in the South West to 0.7% in Q4 2024, only growing faster than Wales and significantly below the national average of 1.6%. Over the next year, businesses in the region expect to increase R&D budgets by 1.5%, slightly ahead of the national average of 1.4%, however, this projection is still below the regional historical average (2.0%).