Q3: Sentiment remains firmly below the UK average after a slight rise.
The latest national Business Confidence Monitor (BCM) shows that business sentiment deteriorated further into negative territory in Q3 2025. This increased pessimism is underpinned by elevated concern over the tax burden, as well as above-average inflation and weak domestic and export sales growth eroding businesses’ profit margins.
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 July to 24 September 2025.
- Business confidence in the East Midlands edged up to -11.8 in Q3 2025 but remains below the UK average and is one of the lowest UK scores.
- Companies expect domestic sales and exports growth to continue to underperform compared to UK and historical averages.
- Weak sales coupled with rising inflationary pressures eroded profits growth and the outlook is subdued.
- Companies reduced headcount in the year to Q3 2025 with limited plans for growth next year.
- The Jaguar Land Rover cyber-attack may explain the rise in concern about government support in the region, while the tax burden remains the main growing challenge, with regulations and customer demand also prominent.
- Capital investment growth has been resilient, but companies plan to scale it back having already cut R&D budget growth significantly.
Business confidence in East midlands
The Business Confidence Index for the East Midlands improved to -11.8 in Q3 2025, easing from -17.8 last quarter. However, it is the fourth consecutive quarterly negative reading and the region once again recorded one of the lowest sentiment scores in the UK, significantly below the national average (-7.3) and its historical norm (+3.2).
Confidence in the region has likely been impacted by the Jaguar Land Rover cyber-attack which reduced production across its supply chain, hitting businesses across the Midlands region and prompting calls for government support. Domestic sales and exports growth both slowed while input price inflation and wage inflation rose in the quarter, eroding profits growth for businesses in the region. Businesses continue to be concerned about the tax burden, with reports rising to a new record survey high ahead of the forthcoming Budget in November.
Domestic sales and exports growth
Businesses in the East Midlands reported annual domestic sales growth of just 1.8% in the year to Q3 2025, one of the lowest rates recorded across all regions, trailing the UK average (3.0%) and the regional historical average (2.9%). The Jaguar Land Rover cyber-attack and low domestic sales growth reported by Manufacturers and Retailers in the quarter likely explains much of the slow growth in the region. Companies expect growth to continue at the same rate over the coming 12 months, the weakest projection across all regions and significantly lower than the UK forecast (4.0%).
Exports growth slowed to just 0.8% in the year to Q3 2025, well below the UK-wide average and the region’s historical norm (both 2.6%). While businesses anticipate global uncertainty to ease and exports demand to rise, particularly for manufactured goods, they have relatively muted expectations for the pace of growth in the coming year. They predict exports growth will rise to 2.1%, much weaker than the UK projection (3.6%) and the joint-lowest forecast alongside Yorkshire & Humberside.
Business challenges
The Jaguar Land Rover cyber-attack was likely a contributing factor for the rise in businesses reporting government support as a growing business challenge in the region in Q3 2025. The issue was much more widely reported in the two Midlands regions (26% of companies in East Midlands, 25% in the West Midlands) compared to the UK average (14%). However, like most UK regions, the tax burden was again the most widely reported growing challenge for businesses in the East Midlands, rising to another survey record high of 64% and above the UK average (60%).
Concern about regulations also peaked in Q3 2025, cited by 47% of companies in the region, matching the national average but ahead of the regional historical norm (39%). This likely reflects the rise in reports in the Retail & Wholesale and Property sectors this quarter. With weakening domestic and export sales growth, customer demand remains a prominent concern, reported by 46% of businesses in the East Midlands, the second highest proportion behind only the West Midlands (49%). While competition in the marketplace eased slightly in this quarter, at 37% it remains above the regional historical and national averages.
Labour market
Employers reported that they reduced their headcount by 1.1% in the year to Q3 2025, the first recorded decline since Q1 2021. This contraction is likely linked to the employment falls in the locally important Retail & Wholesale and Manufacturing & Engineering sectors. The Midlands regions were the only areas to report falling employment in the quarter, with the losses in the East Midlands more significant than the 0.3% decline recorded in the West Midlands. Businesses predict employment growth will return in the coming year but at just 0.3%, the second lowest projected rise across all UK regions, at a quarter of the national forecast (1.2%). The outlook for the West Midlands is also relatively weak at 0.5%.
Alongside relatively subdued expectations for future sales growth, businesses are also likely concerned about rising employment costs. With the challenging tax burden cited at another record survey high, companies also reported that salary inflation ticked up to 3.2% in the year to Q3 2025 and was among the highest rates reported nationwide. Businesses anticipate that pay will rise by 3.1% in the year ahead, the joint second highest projection across UK regions and ahead of the national projection (2.7%) and significantly above the historical regional average (2.2%).
Another persistent issue for East Midlands employers which could also be impacting recruitment is the availability of non-management skills, with 35% of businesses surveyed reporting the issue as a growing challenge in Q3 2025, the highest proportion in the UK and considerably above the regional historical average (20%).
Input prices, selling prices and profits growth
Businesses in the East Midlands reported a spike in annual input price inflation in Q3 2025, to 4.7%, the fastest rise in the UK and the region’s highest rate since Q1 2024. While companies expect the rate to ease considerably in the coming year to 3.4%, their projection is higher than predicted in all other regions and both ahead of the national projection (2.8%) and the regional historical average (2.7%).
However, despite renewed cost pressures, businesses continued to slow the rate of their selling price increases, reporting that they rose by 2.0% in the year to Q3 2025, marginally lower than the national average (2.2%) and edging closer to the historical average (1.5%). Companies anticipate easing the growth to 1.9% in the year ahead, matching the UK-wide projection.
With sales growth slowing and cost pressures accelerating in the year to Q3 2025, East Midlands businesses reported profits growth of just 0.8%, significantly lower than the national average (2.3%) and the regional historical norm (2.6%). Companies in the region have the lowest profits growth expectation in the UK, predicting an expansion of 1.4% over the coming 12 months, compared to 4.1% nationally.
Investment
Despite weak confidence overall, businesses in the East Midlands continue to report resilient capital investment growth in Q3 2025, increasing investment by 2.5%, the fourth consecutive quarter above the historical norm (1.9%) and ahead of the UK-wide rate (1.8%). However, with high levels of uncertainty and squeezed profits growth, companies plan to moderate growth considerably over the coming 12 months to just 0.8%, dropping below the historical average and the national projection (1.7%).
The growth in R&D budgets has also been robust with businesses maintaining growth near to the historical average (1.8%) in recent quarters. However, companies reported a sharp slowdown in Q3 2025, expanding budgets by just 0.2% compared to the UK average of 1.8%. Businesses plan to ease growth further to 0.1% in the coming year, considerably lower than most other regions and the UK average projection (1.6%).