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 Yorkshire & Humberside dropped significantly from +14.4 to +0.6 and business sentiment in the region is now the lowest in the UK.
- Fragile confidence is underpinned by slowing domestic sales and exports growth, with businesses pessimistic about prospects for the year ahead.
- Profits also failed to grow for the first time in three years despite easing inflationary pressures. Businesses expect profits to grow next year but are less optimistic than they are in other regions.
- Regulations are businesses’ primary challenge but customer demand and competition in the marketplace are more prevalent in Yorkshire & Humberside than in most other regions.
- Growth in capital investment and R&D budgets has been relatively strong compared to their historical averages, but prospects are weaker for next year, especially for R&D.
Business confidence in Yorkshire & Humber
Sentiment in Yorkshire & Humberside continued to decline in Q3 2024 and, at +0.6, the Business Confidence Index is now the lowest of all UK regions and nations. The latest fall left the score for the region lagging well behind the national average (+14.4) and below its historical average of +5.2. Confidence in the region is at its lowest level since Q4 2023 when the UK economy was struggling with high inflation and low growth.
Domestic sales and exports growth
Fragile confidence in the region is underpinned by relatively weak domestic sales performance. Annual domestic sales growth slowed significantly in Q3 2024, dropping to 2.0% from 4.2% in Q2 2024. Indeed, Yorkshire & Humberside reported the slowest rate of growth on this measure and was also below the historical average of 2.9%, with the performance of the Manufacturing & Engineering and Retail & Wholesale sectors likely weighing on domestic sales growth in the region. Businesses are downbeat about prospects for the coming year and, at 2.6%, continue to expect the region to lag well behind other parts of the UK and the national average (5.1%).
The rate of exports growth also eased in Yorkshire & Humberside from the previous quarter, to 2.4% year-on-year. This rate of increase was weaker than the national average (2.7%) and companies in the region expect only a slight uptick in exports growth over the coming year, to 2.5%, behind the historical average (2.7%) and the national projection (4.0%).
Input price, selling prices and profits growth
Of some comfort to businesses in the region, is the continued slowing of input price inflation, which eased for the fifth consecutive quarter in Q3 2024. The reported input price rises of 3.7% in the region were the joint-lowest rate in the UK. Companies expect this trend to continue, anticipating input price rises of just 1.7% over the next 12 months, lower than expectations elsewhere in the UK and below the regional historical average of 2.7%.
Selling price inflation also slowed to 2.4% in Q3 2024, lower than the national average (2.6%) and businesses project lower rises next year of just 1.5%, in line with the historical norm (1.5%) and lower than expected in all other regions.
While inflationary pressures have subsided, weaker domestic sales and exports growth appear to be impacting profits, with companies in Yorkshire & Humberside reporting no growth in Q3 2024, the lowest since Q2 2021 when profits growth was negative in the aftermath of the pandemic. Businesses are, however, optimistic that growth will return as input cost pressures weaken sharply. They expect profits growth to rise to 3.2% in the coming 12 months, though this is lower than expected elsewhere in the UK.
Labour market
Faltering business confidence in the region also appears to have impacted businesses’ hiring decisions, with employment growth slowing to 0.9% in the year to Q3 2024, down from 2.1% reported in the previous quarter. This represented the slowest rate of growth of all UK regions and was slightly below the historical average (1.0%). While business anticipate increasing the rate of employment growth in the year ahead, they are relatively downbeat, projecting growth of 1.6%, ahead of only Scotland on this measure and below the UK expectation of 2.1%.
Despite the cooling in labour demand, wage growth remained elevated in Yorkshire & Humberside in Q3 2024. Salary growth increased by 3.8%, up slightly from the previous quarter and the national average (both 3.6%). Businesses expect salary inflation to ease further in the coming year but remain elevated compared to the historical norm (2.2%), projecting growth of 2.7%, although this is lower than the prediction for all other regions apart from Scotland and the West Midlands.
Business challenges
Regulatory requirements were the most widespread rising challenge for businesses in Yorkshire & Humberside, following a spike in the proportion of companies reporting the issue compared to the previous quarter. This may be linked to the rise in Business Services companies reporting regulation as a growing concern, a key sector in the region. In Q3 2024, 48% of businesses in the region reported regulation as a growing challenge, the highest proportion since Q1 2021.
Against the weak sales performance, there was understandably a rise in companies reporting concerns about customer demand and competition in the marketplace, with the latter more prevalent in Yorkshire & Humberside than any other region. The tax burden remains another key challenge for companies, reported by 31% in the latest quarter and higher than the national average (29%).
Investment
Capital investment growth in Yorkshire & Humberside remained constant with the previous quarter at 2.3% and grew broadly in line with the UK average (2.4%) in the year to Q3 2024. While businesses expect this to slow in the coming year to 2.0%, the region is projected to marginally exceed the national average (1.9%) and match the historical average (2.0%). Meanwhile, companies in Yorkshire & Humberside had one of the strongest R&D budget expansions in the UK, reporting growth of 2.8% in the year to Q3 2024. However, growth is expected to slow significantly to 1.1% in the coming year to be broadly in line with the national average (1.2%) over the next 12 months.
