The latest national Business Confidence Monitor (BCM) for Q4 2023 shows a slight shift in sentiment within the quarter. However, the quarter-on-quarter improvement in sentiment is marginal, remaining broadly steady at a similar level over the last few quarters. Overall confidence continues to fall short of the pre-pandemic average.
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 17 October to 15 December 2023.
- The Business Confidence Index for the North West fell below the region’s historical average, having been the most optimistic in the previous quarter.
- Sales performance has been mixed, with businesses in the North West seeing the strongest domestic sales growth but among the weakest in terms of exports growth. Companies anticipate improved growth for both measures in the coming year, particularly for exports.
- Input price inflation remains somewhat stubborn and, while businesses expect it to ease in the next 12 months, the North West has the highest expectation in the UK. Salaries are rising at close to record high rates, with moderations in the coming year predicted. Companies anticipate a similar rate of employment growth in the year ahead.
- Businesses are lifting their selling prices faster than the region’s historical norm, though this is expected to ease over the next 12 months. Profits growth in the North West is joint-fastest with the North East and, with further uplifts expected in the coming year, the North West is the most optimistic region on this measure.
- Financial challenges appear to be resurfacing as growing concerns. This is particularly true for late payments, which are more prominent in the North West than elsewhere, plus the tax burden and bank charges. Customer demand has eased but remains a pressing issue, while regulatory requirements are the most widespread.
- Companies are raising their capital investment spending and R&D budgets and this is expected to continue over the next 12 months but at a slower pace.
Business confidence in the North West
Sentiment in the North West fell in Q4 2023, with the Business Confidence Index now at +3.9. Confidence in the region is down from +12.1 in the previous quarter, when it was the most optimistic region of the UK, and is now below the region’s historical average. The government’s announcement in October 2023 on cancelling the planned northern section of HS2 likely weighed on sentiment, which is now broadly on par with the UK average (+4.2).
Domestic sales and exports growth
Healthy domestic sales are likely to have stopped confidence from falling further in the latest quarter. At 5.9% year-on-year in Q4 2023, domestic sales rose faster in the North West than any other nation and region in the UK. Companies anticipate a slight uplift in the pace of increase in the coming year to 6.4%, which is stronger than elsewhere in the UK.
Export performance in the North West, however, has been notably weaker in comparison, with volumes only 0.4% higher in Q4 2023 than a year ago. Businesses in the region are among the most reliant on the EU market for exporting goods, so companies may be continuing to adjust to Brexit-induced trade disruptions and practical problems at the border under the new regime. But in the next 12 months, businesses anticipate exports growth will gain momentum, reaching 2.7%. While this aligns with the region’s historical norm, it is also the joint-slowest growth rate expected in the UK.
Financial challenges linked to late payments appear to be resurfacing as a major concern for companies in the region. The proportion of businesses in the North West reporting late payments has trended up over the last few quarters, reaching 27% in Q4 2023 ‒ the highest level since Q2 2013, and more so than elsewhere in the UK. The tax burden and bank charges are also a rising source of difficulty. With 30% of businesses reporting the tax burden in Q4 2023, it is double the region’s historical average and is at a record high.
While concern over customer demand has eased since the previous quarter, it remains a pressing issue for 28% of companies in the North West. Regulatory requirements are the most widespread growing challenge for businesses in the region, flagged by almost one in three companies.
Annual employment growth in the North West has stabilised in recent quarters. At 2.6% in Q4 2023, it is among the top-performing nations and regions in the UK. Businesses plan to raise their staff levels at a similar rate over the next 12 months, keeping the North West ahead of the expected rate for the UK and comfortably above the region’s historical norm.
Salaries in the region are rising by 4.3% year-on-year in Q4 2023, faster than most parts of the UK and only marginally below the record high reported in Q1 2023. Although businesses expect this to moderate in the coming year, to 3.5%, it is still notably faster than the region’s historical average.
Input and selling prices, and profits growth
Businesses in the North West continue to struggle with rising input prices, which have remained somewhat stubborn in recent quarters. At 5.3% in Q4 2023, input price rises are more than twice the historical average for the region. While companies expect the rate to moderate to 3.6% in the coming year, this would be faster than in other parts of the UK.
With salaries and input costs remaining elevated, businesses are lifting their selling prices by 3.6% in the year to Q4 2023. Although they expect the rate of uplift to slow markedly in the next 12 months to 2.8%, this would be more than double the average historical pace for the region (1.3%). Rapid price rises, together with strong domestic sales, have helped support profits growth of 3.5% in the region in the year to Q4 2023, which is joint-fastest with the North East. Over the next 12 months, businesses in the North West anticipate the fastest profits growth (5.6%).
Annual capital investment growth in the North West is running at 2.1% in Q4 2023, which is in line with the region’s historical norm and ahead of the UK average. However, businesses are less optimistic about the next 12 months and anticipate a slowdown in the rate, to 1.7%.
Companies in the region also raised their R&D budgets by 2.2% in the year to Q4 2023, which is slightly faster than the region’s historical norm of 1.8%, though the rate is expected to slow to 1.6% in the year ahead.