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.
- Business confidence in the West Midlands improved slightly but while sentiment is ahead of the region’s historical norm, it remains below the UK average.
- Companies in the region recorded weak sales growth both domestically and abroad, but they expect significant improvements in both over the coming year.
- Businesses reported the joint-lowest input price increases in the UK alongside Yorkshire & Humberside and further moderation is expected. The region also has the lowest salary growth expectations in the UK.
- Stronger sales expectations and lower cost pressures support the highest profits growth projections of all UK regions for the next 12 months.
- Despite optimism about the future, customer demand was the most widespread rising challenge, closely followed by regulatory requirements. The tax burden, competition in the marketplace and late payments all remain prevalent.
- Capital investment spending growth increased compared to the previous quarter, but companies plan to reduce the rate of expansion. However, businesses anticipate the fastest growth in R&D budgets in the UK.
Business confidence in the West Midlands
Sentiment in the West Midlands edged slightly upwards in Q3 2024, rising from +12.9 in Q2 2024, to +13.1, significantly above the historical average of +5.0. However, the region still lags behind the national average of +14.4.
Domestic sales and exports
Annual domestic sales growth slowed for the second quarter in a row in the West Midlands in Q3 2024, falling to 2.5% year-on-year. Not only was this expansion below the region’s historical average (3.1%), but domestic sales were only stronger than those recorded in Yorkshire & Humberside. However, businesses in the region expect a significant uplift over the next 12 months, to 6.0%, nearly double the historical average and among the most optimistic regions in the UK.
In addition, companies in the West Midlands recorded the weakest export sales expansion of any UK region in the year to Q3 2024, after growth eased for the fourth consecutive quarter to just 1.0%. This underperformance is likely linked to the weak growth seen in the Manufacturing & Engineering sector, due to the comparatively high concentration of the sector in the region. Businesses in the West Midlands expect an uplift in export sales growth in the coming year, to 3.8%, above the historical average (2.6%), and close to the national projection (4.0%).
Business challenges
Insufficient customer demand also appears to be contributing to weak domestic and export sales growth recorded in the region. The proportion of businesses citing customer demand as a rising challenge climbed to 44% in Q3 2024 and became the most widespread challenge for companies in the region. Only companies in Wales reported this challenge more widely. Businesses reporting regulatory requirements as a rising challenge also increased from the previous quarter, rising to 41% and continued to be a prevalent concern facing businesses in the West Midlands.
Other prominent challenges for businesses in the West Midlands include competition in the marketplace (33%), late payments (33%) and the tax burden (32%), which are each impacting approximately one in three companies in the region, with the latter two issues both significantly above their respective historical averages.
Labour market
Businesses located within the West Midlands recorded one of the weakest employment increases in the UK over the 12 months to Q3 2024, rising by just 1.0%. This was a modest uplift from the previous quarter and, while in line with the region’s historical average (1.0%), this expansion was only ahead of Yorkshire & Humberside. Looking ahead, however, companies in the West Midlands plan to increase their staff levels faster than most other regions over the next year, with a projected increase of 2.7%.
Wage growth eased slightly compared to Q2 2024, as companies in the region raised salaries in line with the national average, of 3.6%. With general inflation now back to more manageable levels, companies are expecting to moderate wage growth significantly over the next 12 months, with the West Midlands anticipating the softest rise of just 2.3%. However, even at this rate, the projected rise is above the region’s historical average (2.0%)
Input and selling prices, and profits growth
Alongside Yorkshire & Humberside, the West Midlands recorded the joint-lowest input price inflation of all UK regions over the year to Q3 2024, at 3.7%. Further significant easing is expected for the year ahead, with input cost growth projected to drop below the historical average (2.8%) to 2.1%.
Softening input price growth has been reflected in the rate at which companies increased their selling prices in the year to Q3 2024. At 1.9%, the West Midlands reported one of the lowest selling price increases in the UK in the year to Q3 2024. However, this rise was still stronger than the region’s historical average (1.5%). Businesses in the region are planning to lift their prices at a slightly faster rate over the next year, with a 2.2% increase forecast, equaling the national average.
Businesses in the West Midlands reported slowing profits growth in Q3 2024 compared to the previous quarter, but the 2.8% increase matched both the national average and the region’s historical average. Strong sales expectations alongside easing input price inflation and lower anticipated salary rises have resulted in West Midlands businesses having the highest profit growth expectations in the UK, with companies projecting an increase of 6.1% over the next 12 months compared to 5.1% nationally.
Investment
Companies in the West Midlands increased their capital investment growth at a similar pace to the national average (2.4%) in the year to Q3 2024, with a 2.5% rise. However, businesses in the region are planning to slow the rate of expansion below the historical average (1.8%), to 1.6% in the year ahead, anticipating one of the weakest rises in the UK.
Meanwhile, R&D budget growth picked up in Q3 2024, as businesses in the region increased budgets by 2.4%, notably above the national average of 1.7%. While they plan to reduce budget growth slightly over the next 12 months, companies in the region expect the strongest increase of any UK region over the next year, with the projected growth of 2.1% set to outperform the region’s historical average of 1.8%.
