Q1: North West businesses remain the most confident in the UK despite a slight dip.
The latest national Business Confidence Monitor (BCM) shows that business sentiment was on course to move into positive territory in Q1 2026, but the outbreak of the Iran war had a dramatic impact in the final weeks of the survey period, with confidence deteriorating sharply. While businesses reported improved annual domestic sales and exports growth and easing input price inflation compared with Q4 2025, the war introduced significant downside risks to the outlook for the coming year.
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 12 January to 16 March 2026.
- Business confidence in the North West eased slightly to +9.9 in Q1 2026, still above the historical norm (+5.8) and significantly ahead of the UK average (-1.1).
- Both domestic sales and exports growth were subdued in the year to Q1 2026, though both are expected to improve.
- Labour costs were the most prominent business challenge, followed by regulations and the tax burden.
- Annual input price inflation slowed but remained above the UK average and is expected to increase slightly over the coming year.
- Employment increased in line with the national average and businesses expect growth to accelerate over the next 12 months.
- Investment remains strong but expansion is expected to moderate next year, while R&D growth is set to remain muted.
Business confidence in North West
Sentiment in the North West deteriorated slightly compared to the previous quarter but businesses in the region were still the most confident in the UK in Q1 2026. The Business Confidence Index slipped back from +12.9 in Q4 2025, to +9.9. However, the North West was the only region where confidence exceeded the historical average (+5.8) and was significantly above the national average (-1.1).
The positive outlook was underpinned by strong sales forecasts alongside easing concerns over the tax burden, following November’s Budget. However, the upbeat outlook for the coming year has likely been impacted by the conflict with Iran, with weekly national survey data showing a sharp contraction in sentiment in the final weeks of the survey period.
Domestic sales and exports growth
This quarter, businesses in the North West recorded their weakest annual domestic sales growth since Q2 2021. At just 1.9%, this rise was the lowest of any region and around half the pace recorded across the UK (3.5%). Companies in the region predict that domestic sales growth will improve significantly over the next 12 months to 6.1%, second only to the rise forecast in Yorkshire & Humberside (6.2%) and nearly double the regional historical norm (3.2%). Business Services and IT & Communications are likely the largest contributors to this optimism in the region, due to their importance to the Manchester and Liverpool city regions.
Annual exports growth also eased to 2.2% in Q1 2026, lagging the 3.3% increase recorded for the UK overall and the region’s historical average (2.6%). Exports growth is expected to improve to 4.1% over the coming year, matching the UK-wide forecast. However, the increased volatility of oil and gas prices since the outbreak of the Iran war and the rise in global uncertainty has amplified the risk to the outlook.
Business challenges
The most widespread rising challenge for companies in the North West in Q1 2026 was labour costs, with the issue cited by 55% of businesses, comparable to the UK proportion (56%). It was the first time the concern was included in the survey and the high rate likely reflects the rise in employers’ National Insurance Contributions in April 2025 and the increases in minimum wages, alongside the uncertainty surrounding the potential costs associated with the Employee Rights Act.
Among other prominent concerns, reports of regulations increased over the quarter, with 47% of businesses surveyed in the North West citing these issues as a rising challenge in Q1 2026, equalling the national average but still marginally above the region’s historical average (39%). Concern about the tax burden eased in the North West in Q1 2026, with 45% of companies citing the issue as a growing challenge, the lowest proportion since Q4 2024. The issue was less prevalent among businesses in the North West compared to the UK (53%) and any other region. It is likely that the record survey high reported in Q3 2025 reflected the widespread uncertainty and speculation ahead of the November Budget.
Companies were also asked about energy costs for the first time in the survey and the issue was reported by 38% in the North West as a growing challenge, marginally ahead of the UK average (35%).
Labour market
Employment growth in the North West, at 1.1% in the year to Q1 2026, was unchanged from the previous quarter and in line with the national average. Companies have a more optimistic employment outlook for the year ahead, expecting employment to increase by 2.1%, above the historical norm and national projection (both 1.3%).
Like other regions, the subdued employment growth in the region in recent quarters is reflected in the proportion of businesses reporting labour market concerns. Only 10% of businesses reported the availability of management skills as a rising challenge, while 15% cited the availability of non-management skills in Q1 2026, both down on their respective historical averages (13% and 18%).
Weaker labour market demand resulted in annual salary inflation easing slightly to 2.8% in the year to Q1 2026, notably below the national average (3.2%). Businesses forecast that pay growth will continue at a similar trajectory over the next 12 months, with a projected increase of 2.7%, which is above the regional historical norm (2.2%).
Input and selling prices, and profits growth
Annual input price inflation softened in Q1 2026 and, at 3.2%, was both the joint lowest in the UK and significantly below the national average (3.6%). The North West is the only UK region where businesses expect an uptick in input price inflation over the coming year, with a projected rise of 3.4%. The forecast rate is higher than the region’s historical norm (2.7%) and stronger than the projection of most other regions. However, the inflation outlook is more uncertain due to the Middle East conflict.
Companies in the North West raised their selling prices by 2.6% in the year to Q1 2026, marginally ahead of the 2.3% rise recorded across the UK. Over the coming year, companies plan to raise the rate at which they increase their selling prices to 3.0%, over double the region’s historical norm (1.4%) and among the largest anticipated rises of any UK region.
Sluggish sales growth resulted in muted profits expansion of just 2.0% in the year to Q1 2026, significantly below the 3.1% rise recorded nationally, but the strong sales outlook underpins sharp profits growth expectations for the year ahead. The anticipated rise of 6.5% is over twice the region’s historical norm (2.9%) and stronger than all other regions. However, these projections were largely established before the Iran war.
Investment
Despite moderating from the previous quarter, annual capital investment growth of 2.9% remained above the national average (2.5%). Looking ahead, businesses plan to slow growth to 1.2% over the next 12 months, just over half the historical norm (1.9%) and only stronger than Wales.
Businesses in the North West recorded the weakest R&D budget expansion of any UK region in the year to Q1 2026. Growth of 1.2% was the softest increase since Q3 2023 and just over half the 2.1% UK average rise. Businesses intend to cut R&D budget growth further in the coming year to 1.0%, significantly below the 1.9% historical norm.