Q3: Business confidence in the North East drops back into negative territory.
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.
- The Business Confidence Index in the North East returned to negative territory in Q3 2025, dropping to -7.2 and close to the UK score (-7.3).
- The tax burden remained the most widespread growing challenge reaching another survey record high, while regulatory concerns continue to rise.
- Despite falling confidence, domestic sales growth was resilient and exports growth continued to recover, with further improvements anticipated.
- While annual input price inflation increased slightly in the quarter, companies reported the strongest profits growth of any region and expect to sustain above-average rises in the coming year.
- Businesses in the North East remain relatively upbeat about employment prospects and plan to continue to grow their training budgets to retain staff.
- The capital investment outlook has deteriorated and the reported improvement to R&D budgets is not expected to be maintained.
Business confidence in North East
After a temporary rise in confidence recorded in the last quarter, sentiment in the North East dropped back into negative territory with a score of -7.2, in line with the UK average (-7.3). The outturn marks the third consecutive quarter when confidence has been below the regional historical average (+6.1) and is the lowest score since Q4 2022.
This dip in confidence is likely linked to record survey high concerns about tax in the region following April’s rise in National Insurance Contributions and National Living Wage, as well as worries about whether further tax rises in the November Budget could impact business finances and performance. The ongoing uncertainty appears to be causing businesses to delay investment decisions, with capital investment growth slowing in the latest quarter and companies planning to lower growth further in the year ahead.
Domestic sales and exports growth
Despite low levels of confidence in the region, businesses reported that domestic sales expanded by 3.9% in the year to Q3 2025, rising above the historical average (3.1%) and a faster pace than recorded in the UK (3.0%). The growth is likely to have been supported by a range of sectors that reported robust sales in the latest quarter, including IT & Communications and Transport & Storage. Businesses in the North East expect growth to slow to 3.5% over the next 12 months, a slightly lower projection that the national average (4.0%).
With global uncertainty easing over the survey period, businesses in the region saw annual exports growth improve to 2.6% in Q3 2025, rising above the historical norm and the national average (both 2.4%). Businesses expect growth to continue to strengthen over the coming year, projecting a rise of 3.5%, broadly consistent with the UK-wide forecast (3.6%). As part of the UK trade deal with the US, tariffs on automotive exports have been cut to 10% from 27.5% previously and are lower than the 15% tariffs applied to EU exports to the US, which should offer some support to car manufacturers in the North East.
Business challenges
Common to most regions, the tax burden is the most widely cited growing business challenge in the North East. The issue was reported by 54% of companies, a new survey record high for the region. The rise from last quarter suggests that, not only are businesses still adjusting to the increases in National Insurance Contributions and the National Living Wage from April, but they are also concerned about possible future tax rises that could be announced in the Budget in November.
Alongside rising concerns about tax, reports of the growing challenge from regulatory requirements have also been steadily increasing among businesses in the region. These concerns were reported by 45% of companies in Q3 2025, above the regional historical average (38%) and close to the national rate (47%). The rise in regulatory concern is most notable in sectors that have historically been less likely to report the issue, including Retail & Wholesale, Property and Transport & Storage, with rates in these sectors at their highest levels for seven years.
At the same time, reports about customer demand (33%) and competition in the marketplace (32%) as a growing challenge, while still prominent, were below their respective historical averages in Q3 2025.
Labour market
Businesses in the region reported a slight slowdown in employment growth to 1.3% in the year to Q3 2025, in line with the historical norm and above the UK average (0.9%) recorded in the quarter. However, companies plan to increase the rate of recruitment over the next 12 months, projecting employment growth of 2.0%. This is one of strongest projections across all UK regions, behind only Wales (3.6%) and above the UK forecast (1.2%).
Companies anticipate that stubbornly high salary growth will slow in the year ahead, after another rise in the rate to 3.0% was recorded in the year to Q3 2025, closely mirroring the UK rate (3.1%). Businesses expect wage growth to drop to 2.5% in the coming 12 months, closing the gap to the region’s historical average (2.2%) and lower than the national expectation (2.7%).
Staff turnover was reported by 1 in 5 businesses in the North East as a growing challenge, consistent with the national average and historical norm. Concerns about the availability of both management and non-management skills in the region remain below historical norms. However, companies in the region recorded the highest growth in staff training budgets in the UK in the year to Q3 2025 and plan to maintain above-average rates in the year ahead, perhaps to help retain staff.
Input prices, selling prices and profits growth
Annual input price inflation in the North East has risen gradually over the last two quarters and, at 4.0% in Q3 2025, is above the rate (3.9%) recorded in Q4 2024, demonstrating the persistent cost pressures that businesses have endured throughout this year. Companies expect the rise in input prices to slow to 3.3% over the next 12-month period, though this is still one of the highest rates projected across UK regions and above the national average (2.8%) and the regional historical norm (2.7%).
Businesses reported a slight reduction in selling price inflation of 2.3% year-on-year in Q3 2025, which was broadly in line with the UK average (2.2%) but remained above the region’s historical norm (1.7%). Companies plan to maintain the increase in their selling prices at the same rate over the next 12 months, with selling prices in the North East expected to continue to outpace most other UK regions and the UK average projection (1.9%).
After deteriorating in recent quarters, companies in the North East reported strong profits growth in Q3 2025, with annual growth of 4.9% outpacing all other regions and the UK rate (2.3%). With cost pressures expected to ease and sales growth to improve, businesses anticipate they will be able to maintain profits growth at the same rate next year, faster than most UK regions and the national average (4.1%). The strong profits outlook for Energy, Water & Mining and Manufacturing & Engineering likely underpins this projection for the region.
Investment
Amid sustained domestic uncertainty, businesses in the North East reduced their capital investment growth to 1.9% in the year to Q3 2025, dropping below the historical norm for the region (2.3%). Companies plan to scale back their capital expenditure growth further over the coming year, to 1.6%, slightly below the national growth forecast (1.7%).
After reporting a large contraction in R&D budgets last quarter, businesses in the region recorded growth of 2.2% over the year to Q3 2025, the highest rate of growth in the North East since Q1 2024. Companies anticipate growth will slow over the coming year to 1.2%, below the historical average (1.9%) and the UK-wide projection (1.6%).