ICAEW Business Confidence Monitor (BCM): Yorkshire & Humber

The latest national Business Confidence Monitor (BCM) for Q4 2024 shows a significant decline in sentiment from the previous quarter, with confidence only just remaining positive, as businesses digest the implications of the proposed tax increases in the Autumn Budget and domestic sales growth eased.

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 Yorkshire & Humberside slipped into negative territory in Q4 2024, falling from +0.6 to -5.1, significantly below the national average of +0.2.
• The tax burden became the most prevalent rising challenge for businesses in the region following the announcements in the Budget, with regulatory requirements and competition in the marketplace also a concern for a large proportion of companies in the region.
• Domestic sales increased compared to the previous quarter, however, the region was among the weakest in the UK in terms of exports growth and this poor relative performance is expected to continue.
• However, profits growth increased significantly compared to Q3 2024 as companies increased their selling prices and businesses in the region are more optimistic than most other parts of the UK about future profits growth.
• Businesses plan to scale back their capital investment growth sharply in the coming year but increase R&D budgets growth.

Following a fall in the previous quarter, sentiment among businesses in Yorkshire & Humberside declined further in Q4 2024 and slipped into negative territory, as companies faced increased uncertainty in the wake of the Autumn Budget and faltering UK economic growth. The region’s Business Confidence Index declined to -5.1, the lowest score since Q4 2022 and significantly below both the national average (+0.2) and the regional historical average (+5.1).

Despite the decline in confidence, companies in Yorkshire & Humberside reported a marked uplift in annual domestic sales growth in Q4 2024, rising from 2% in the previous quarter to 4.2%. This was notably stronger than the regional historical average (2.9%) and only weaker than the growth reported in the North West and Scotland. Businesses in the region expect a modest improvement in domestic sales in the year ahead, however, the projected increase of 4.6% is marginally below the 4.9% increase projected nationally. Yorkshire & Humberside’s larger dependence on the comparatively downbeat Manufacturing & Engineering and Retail & Wholesale sectors is likely weighing on sales expectations in the region.

In contrast, the rate of exports growth slowed for the second consecutive quarter in Q4 2024 to 1.7% year-on-year. This expansion was among the weakest of all UK regions, significantly below the national average (2.8%). Over the next 12 months, businesses expect a substantial uplift in exports growth to 2.8%, marginally above the regional historical norm (2.7%). However, even with this uptick, the growth forecast in Yorkshire & Humberside is slower than anticipated in most other UK regions.

Input price inflation remained unchanged from the previous quarter in Q4 2024, with growth of 3.7%, matching the rate observed nationally but still significantly above the region’s historical norm (2.7%). Input price inflation is expected to moderate further over the next 12 months, with a projected increase of 3.1%. However, this rate of growth is one of the strongest anticipated in the UK.

After softening in each of the past five quarters, businesses increased the rate they lifted their selling prices to 2.9% in Q4 2024, somewhat stronger than the national average (2.5%). However, businesses expect selling price inflation to revert to its downward trend and plan to increase the prices charged to customers by 2.3% over the next 12 months, as their input costs also ease. However, this projected selling price growth is still significantly stronger than the regional historical average (1.6%) but broadly in line with the increase expected nationally (2.2%).

While inflationary pressures persist, higher selling price growth alongside improved annual domestic sales growth facilitated an uptick in profits growth in the region. Profits grew by 3.1% in the year to Q4 2024, marginally above the regional historical norm (2.8%) but slightly behind the national average (3.3%). However, companies in Yorkshire & Humberside are optimistic that profits growth will accelerate as input cost inflation eases further. The projected increase of 5.5% is almost double the historical average and higher than forecast in most other regions.

Companies in Yorkshire & Humberside lifted the rate at which they increased their staffing levels from 0.9% in the previous quarter to 2.6% in Q4 2024. The region recorded one the sharpest increases in employment growth in the UK and was significantly stronger than the regional historical average (1.0%). However, businesses plan to slow the rate of employment growth to just 1.7% in the coming year, lagging marginally behind the 1.9% rate forecast for the UK. While skills availability appears to be less of a challenge for businesses in the region, concerns about staff turnover remain above the regional historical average. Cited by 25% of companies in Yorkshire & Humberside, the issue is more prevalent than the national average (21%).

However, despite the increase in labour demand and potential staff turnover issues, salary growth softened in the region in Q4 2024, to 3.2%. This rise was broadly in line with the national average (3.1%) but still significantly above the historical average (2.3%). Businesses expect to maintain the pace of wage growth over the coming year; however, the projection is above the 2.7% rate expected nationally and faster than anticipated in all other UK regions.

The Autumn Budget delivered significant tax increases and the announcements resulted in a spike in concern across UK businesses in Q4 2024 as the tax burden overtook regulatory requirements to become the most widespread growing challenge nationally. A larger proportion of companies in Yorkshire & Humberside were concerned about these issues compared to any other region in the UK, with 62% of businesses citing the tax burden as a rising challenge, double the proportion recorded in the previous quarter and the highest on record.

Regulatory requirements remain a widespread growing challenge encountered by businesses in Yorkshire & Humber, and 41% of businesses in the region reported regulation as a growing challenge in Q4 2024, above the historical average for the region (39%).

Despite the increased domestic sales growth, competition in the marketplace was a more prevalent rising challenge in Yorkshire & Humberside than in almost any other region in Q4 2024, with 40% of businesses in the region citing these concerns.

Capital investment growth in Yorkshire & Humberside slowed marginally in Q4 2024 compared to the previous quarter, with an increase of 2.2% year-on-year. This increase was still marginally above the historical average (2.0%) but was lower than the 2.6% increase recorded nationally. Companies in Yorkshire & Humberside expect significant moderation in the coming year with growth set to ease to just 0.7%, and the region only projected to outpace Wales, where investment is expected to decline.

Businesses in the region recorded comparatively sluggish R&D budget growth of just 1.2% in the year to Q4 2024, lagging behind the 1.6% increase reported nationally. However, growth is expected to increase to 1.7% in the coming year, equaling the historical average (1.7%) and faster than projected in most UK regions.

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