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.
- Business Confidence in the North West dipped below its historical average in Q4 2024 with concerns about the tax burden and falling confidence in key sectors likely weighing on sentiment.
- Despite the overall decline in confidence, domestic sales growth expanded over three consecutive quarters and is growing at the fastest pace in the UK.
- However, input price inflation increased slightly but companies expect a slowdown in growth over the next year, while the rate of salary growth slowed but remains historically high.
- Businesses in the region reported the highest profits growth in the UK, with companies expecting stronger growth over the coming year.
- Regulatory requirements persist as the most cited challenge for businesses but concern about the tax burden reached a survey-record high in Q4 2024.
- Capital investment is the fastest growing in the UK and is anticipated to remain so over the next year.
Business confidence in North West
Business confidence in the North West fell for the third quarter in a row in Q4 2024, dropping from +5.7 in Q3 2024 to +1.6 and remaining below its historical average (+5.9). The Confidence Index in the region is now above the national average (+0.2) and is one of the highest in the UK. Alongside growing concerns about the tax burden, the fall in sentiment is likely attributed to lower confidence in a few key sectors in the region. This includes the Retail & Wholesale and Manufacturing & Engineering sectors, two sectors with local importance that both saw a decline in confidence in Q4 2024.
Domestic sales and exports growth
Despite falling confidence in the region, the rate of domestic sales growth has increased over the last three consecutive quarters, reaching 5.4% in Q4 2024, and the fastest rate of growth recorded across the UK. It exceeded both the national average (3.2%) and the historical average for the region (3.2%). Companies anticipate a further increase in the growth rate over the next 12 months to 6.1%.
Companies in the region reported that exports growth slowed to 0.9% in Q4 2024, one of the lowest growth rates recorded in the UK. This rate of growth was only slightly faster than the North East and remains below the national average (2.8%) and regional historical average (2.6%). However, it is expected to pick up pace over the next year to 4.6%, above projections for the rest of the UK (4.0%).
Business challenges
Regulatory requirements continue to be cited as the most prominent growing challenge in the North West, with 48% of businesses reporting them as an issue, the highest proportion since Q1 2020. Tax rises announced in the Autumn Budget explain why the tax burden has risen as a growing concern in the region, with 39% of businesses in the North West reporting the issue in Q4 2024. This is not only a historical high, but also nearly double the historical norm (15%).
Like many regions, a large proportion of businesses in the North West continued to report customer demand (28%) and competition in the marketplace (22%) as growing concerns. Meanwhile, transport problems (20%) are more widely cited in the region than elsewhere.
Labour market
The rate of employment growth continued to pick up in the North West, increasing to 2.8% in Q4 2024. This is more than twice the regional historical average (1.3%) and the second highest growth rate in the UK behind Scotland. Businesses anticipate that employment growth will continue to rise in the year ahead to meet stronger sales demand, and project growth of 2.9% next year, the fastest pace in the UK and significantly higher than UK-wide expectations (1.9%).
Companies in the region reported that wages grew by 3.3% in the year to Q4 2024. While this is a decline in the rate reported in Q3 2024, it is the second fastest growth rate in the UK, only slightly slower than the South West (3.6%) and remains high by historical standards (2.1%). Companies expect salary growth to continue to ease towards its historical average, projecting growth of 2.9% for the year ahead, slightly higher than the national projection (2.7%).
There are also signs that labour market challenges are easing in the region. The proportion of businesses reporting staff turnover as a concern (17%) is now slightly below the national average (21%) and the historical regional average (19%), while businesses reporting the availability of non-management skills as an issue remained constant at 19%, only slightly above the national and regional historical average of 18%. In addition, the availability of management skills seems to have improved in Q4 2024, with only 13% of companies reporting it as a growing challenge.
Input and selling prices, and profits growth
Input price inflation rose slightly in Q4 2024 and, at 4.2%, was one of the highest growth rates in the UK and remained significantly above the historical average (2.6%). Input price inflation is expected to slow over the next 12 months, but the rate is anticipated to remain above the historical average at 3.1%.
Still-high wages growth and rising input price inflation appear to have fed through to selling prices, which picked up to 3.1% in Q4 2024, but businesses anticipate growth will ease slightly over the next 12 months to 2.7%. However, the projected rate of growth is still above the historical average (1.3%) and the strongest rate expected across the UK.
Likely linked to stronger domestic sales growth, businesses in the North West reported a slight increase in profits growth compared to the previous quarter. Profits growth ticked up to 4.5% in Q4 2024, up from 3.5% in Q3 2024, with the region recording the strongest expansion in the UK. Companies in the region are optimistic that profits growth will improve further and rise to 5.3% over the next 12 months, almost double the historical average rate (2.9%).
Investment
Capital investment growth was the highest in the UK in the year to Q4 2024, more than doubling to 3.8% from 1.6% reported in the previous quarter. This outturn was well above both the national average (2.6%) and the regional historical norm (2.1%). The strong rate of growth is expected to continue over the next year, with companies in the North West planning to maintain growth at the fastest pace in the UK at 3.8% and more than double the projected national average (1.8%).
The growth in R&D budgets slowed in Q4 2024, increasing to 1.7% and only marginally above the national growth rate of 1.6%. The outlook for growth over the next 12 months remains positive however, with businesses in the North West planning growth of 2.7%, the highest rate of any region in the UK, and significantly above the historical average (1.9%).