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 West Midlands fell into negative territory, below both the region’s historical norm and the UK average.
- Companies in the region recorded relatively weak sales growth both domestically and abroad, but they expect significant improvements over the coming year.
- Businesses reported the lowest input price inflation in the UK and further moderation is anticipated. However, the region has above-average salary growth expectations for the year ahead.
- Stronger sales growth and lower cost pressures are expected to support higher profits growth over the next 12 months.
- The tax burden was the most widespread rising challenge, closely followed by customer demand. Competition in the marketplace, regulatory requirements and availability of non-management skills all remain prevalent concerns.
- Capital investment growth increased for the second consecutive quarter, but companies plan to reduce the rate of expansion and forecast only modest R&D budget growth next year.
Business confidence in West Midlands
Sentiment in the West Midlands fell in Q4 2024, with the Business Confidence Index falling from +13.1 in Q3 2024, to -1.6, significantly below the historical average of +4.9 and its lowest level since Q4 2022. In addition, confidence in the region continues to lag behind the national average of +0.2. Alongside the tax rises announced in the Autumn Budget, weakening domestic sales growth appears to be denting confidence in the region.
Domestic sales and exports growth
Annual domestic sales growth continued to slow for the third quarter in a row in the West Midlands in Q4 2024, easing to 1.9% year-on-year. Not only was this rate of expansion below the regional historical average (3.1%), but it was also the weakest recorded domestic sales growth across UK regions. While businesses expect a significant uplift over the next 12 months, to 4.1%, more than double the current growth rate, the projection is weaker than for other regions in the UK.
News about exports was in some ways more positive, with companies in the region reporting an uptick in exports growth after four consecutive quarters of slowing growth, recording an expansion of 2.1% in Q4 2024. However, despite this uplift in growth, the region was behind the 2.8% growth observed nationally. The relative underperformance is at least in part linked to the modest export increases recorded in the locally important Manufacturing & Engineering and Transport & Storage sectors. Businesses in the West Midlands expect an uplift in exports growth in the coming year, to 3.7%, rising above the historical average (2.5%), but lagging behind the national projection (4.0%).
Business challenges
The tax burden was the most prominent growing challenge mentioned by businesses in the West Midlands, cited by 39% of businesses in Q4 2024. Like many other regions, the proposed tax rises announced in the Autumn Budget have caused increased uncertainty in the West Midlands, with citations rising to the highest proportion on record for the region.
With the region recording relatively weak sales and exports growth, both competition in the marketplace (37%) and customer demand (37%) are the most prominent growing concerns for businesses, behind the tax burden, and both are more prevalent in the West Midlands than the national average.
Other prominent challenges for businesses in the West Midlands include regulatory requirements (29%) and the availability of non-management skills (29%), with the latter more common in the West Midlands than in any other region.
Labour market
The rate of employment growth reported by businesses in the West Midlands has been gradually trending down since its peak in Q2 2022. In the 12 months to Q4, employment in the region grew by just 0.5%, half the historical average growth rate recorded in the region and significantly below the 1.7% reported nationally. Looking ahead, companies in the region plan to increase their staffing levels at just over half the pace projected nationally (1.9%), with growth of just 1.0% expected.
Wages growth eased for the second consecutive quarter in the region, to 3.2% in Q4 2024, marginally above the national increase (3.1%). In the coming year, companies expect wages growth to moderate further to 2.8%. However, while still close to the national average projection (2.7%), the forecast rise is well above the regional historical norm (2.0%).
Input and selling prices, and profits growth
The West Midlands recorded the lowest input price inflation of all UK regions over the year to Q4 2024, at 3.2%. Further significant easing is expected for the year ahead, with input cost growth projected to drop below the historical average (2.8%) to 2.2%.
Softening input price growth has been reflected in the rate at which companies increased their selling prices in the year to Q4 2024. At 2.2%, the West Midlands reported one of the lowest selling price increases. However, this rise was still stronger than the region’s historical average (1.5%). Businesses in the region plan to lift their prices at the same rate over the coming year, with a 2.2% increase forecast, equaling the national average.
Businesses in the West Midlands reported an uptick in profits growth in Q4 2024 compared to the previous quarter. The 3.7% increase surpassed both the national average (3.3%) and the region’s historical average (2.8%). Expectations for profits growth among businesses in the region remain relatively high at 4.9% for the next 12 months, and close to the national projection (5.0%).
Investment
Companies in the West Midlands increased their capital investment growth for the second consecutive quarter in Q4 2024, with a 3.1% rise and outpacing the national average (2.6%). However, businesses in the region plan to slow the rate of expansion in the year ahead to just 1.5%, below the historical average (1.9%), and one of the weakest rises projected across UK regions.
Meanwhile, the growth in R&D budgets in the region slowed in Q4 2024 but the reported growth of 1.9% was above the national average of 1.6%. Companies in the West Midlands plan to continue to ease the rate of growth further in the year ahead, with projected R&D budgets expected to grow by just 0.7%, half the national forecast rate (1.4%) and significantly below the regional historical norm (1.8%).