The latest national Business Confidence Monitor (BCM) for Q2 2024 shows a sustained increase in confidence and is now at its highest level for two years, as businesses expect falling input price inflation to support further growth in demand and improved profits 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 April to 22 June 2024.
- The Business Confidence Index for the North West dipped to +18.0 in Q2 2024 but remains ahead of the UK.
- Domestic sales and exports growth improved and businesses anticipate stronger growth in line with the UK average next year.=
- Businesses report that input costs and selling price inflation is lower in the North West than most parts of the UK and they expect that position to be maintained.
- There are signs that labour market challenges have risen in the region as salary growth picked up and employment growth slowed.
- Customer demand has become the greatest concern for businesses, while regulatory requirements and competition in the marketplace are prevalent.
- Capital investment has been growing steadily ahead of the national and historical rate, while businesses plan to curb robust R&D spending next year.
Buiness confidence in the North West
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Sentiment in the North West dipped in Q2 2024 and the Business Confidence Index is now at +18.0, down from +24.9 in the previous quarter. Despite the fall, confidence in the region remains ahead of the UK average (+16.7) and is three times the region’s historical average (+6.0). The North West is now the third most optimistic region in the UK, behind the East of England and the South East.
Domestic sales and exports growth
Domestic sales growth picked up in Q2 2024 to reach 3.5%, after a dip in the previous quarter to 2.2%. Companies in the North West anticipate that sales will continue to improve, projecting growth of 5.1% in the coming year, comfortably ahead of the historical average of 3.1% and broadly in line with the expectation for the UK (5.3%).
Export performance also improved after two disappointing quarters. Exports increased by 2.4% which, while still among the weaker regional performances, was only just short of the historical average for the North West of 2.6%. Businesses foresee exports growth gaining strength in the coming year, rising to 4.4% and similar to the projected UK average (4.5%).
Business challenges
Despite recent improvements to sales, customer demand is now the most widespread growing concern and reported by 42% of businesses in the region. Regulatory requirements remain prominent but were reported by a smaller proportion of businesses than the historical average and was less prevalent than in most other regions. Competition in the marketplace is another significant concern cited by 34% of businesses in Q2 2024. This is consistent with the historical average (35%) and higher than all other regions apart from Yorkshire & Humberside.
There are also signs that labour market challenges are returning as demand for goods and services grows. Most notably in the North West, staff turnover was reported as a growing challenge for 27% of businesses compared to 22% nationally. A large proportion (31%) of businesses also reported that the availability of non-management skills was an issue, the highest rate outside of Scotland.
Labour market
Employment growth has been relatively muted in the North West in recent quarters. This could be due to the labour market challenges reported by businesses which may be limiting recruitment. However, weaker sales in preceding quarters may also have dampened employers’ recruitment plans, while persistent wage inflation and the increase in the National Living Wage may have eaten into recruitment budgets. Indeed, salary inflation in the region rose to 4.4% in the latest quarter, the highest of any region and over double the historical norm (2.1%). Whatever the drivers, regional employment grew by 1.4% in Q2 2024, below the national average (1.8%), with only the West Midlands reporting weaker growth in the quarter.
Employers expect recruitment to increase in the coming year, projecting employment growth of 1.8% which is close to the national projection of 1.9%. They anticipate that cooling wage pressures will help, expecting salary inflation to fall to 3.0%, below the national average (3.2%) and closer to the historical norm (2.1%).
Input and selling prices, and profits growth
The survey shows that input and selling cost inflation in the North West are lower than most parts of the UK. Indeed, input price inflation fell sharply in Q2 2024 to 4.0% with businesses anticipating that price rises will fall below the historical average (2.6%) in the coming year to 2.3%. Meanwhile businesses have been moderating the rate at which they raised their selling prices, although this has been more gradual up to now. In the latest quarter, selling prices rose by 2.9%, down from 3.2% in Q1 2024. Companies forecast raising their prices by 2.1% over the next 12 months, with only London expecting a lower rate, but above the regional historical average of 1.3%.
Easing cost pressures in the region are likely a key reason for improved profits growth, which returned to 4.2% in Q2 2024, after a dip in the previous quarter. The result was a stronger outturn than most other regions and only businesses in Wales and the South West reported higher growth in the quarter. Profits growth is projected to continue into the year ahead, rising to 4.7%. While this is comfortably above the historical average (2.9%), it is set to lag all other regions and the national average (5.5%).
Investment
Capital investment growth improved after a disappointing performance in the previous quarter. Businesses in the region reported growth of 2.4%, marginally above the UK average (2.3%) and ahead of the historical average (2.1%). Companies expect to maintain this relative position in the coming year, with projected growth of 2.2%, marginally ahead of the 2.1% expected for the UK.
Companies also grew their R&D budgets ahead of the historical and national average in Q2 2024, at 2.4%. However, they plan to curb growth in the future at 1.4% over the next 12 months, compared to the historical average of 1.8% and the national projection of 1.6%.
