The latest national Business Confidence Monitor (BCM) for Q2 2024 shows a sustained increase in confidence and is now at its highest level for two years, as businesses expect falling input price inflation to support further growth in demand and improved profits in the year ahead.
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 15 April to 22 June 2024.
- Sentiment in the South West failed to grow in Q2 2024, widening the gap to the UK average.
- But domestic sales and exports growth in the South West increased at a similar rate as the national average and businesses are optimistic that both will accelerate in the coming year.
- Perhaps weighing on confidence, input price inflation ticked up slightly and companies are raising their selling prices faster than most other regions, though both are expected to ease.
- Companies in the region have the joint-strongest expectations for employment growth over the next year and salary growth expectations are below the UK average.
- Regulatory requirements and customer demand are the most prominent businesses challenges, with concern growing about late payments.
- Investment in the region has been relatively strong and, unlike much of the UK, companies plan to increase capital investment and R&D budgets growth.
Business confidence in the South West
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Business sentiment in the South West declined slightly to +12.9 in Q2 2024, from +13.4 in the previous quarter. Even with this drop, the Confidence Index was still three times higher than the historical average (+4.2) for the region. However, the region lags the national average of +16.7 which increased from +14.4 last quarter.
Domestic sales and exports growth
Annual domestic sales growth experienced a modest slowdown in the South West in Q2 2024 compared to the previous quarter. However, the 3.3% growth reported was marginally above the historical average (3.1%) for the region and matched the UK average. Businesses in the region expect sales growth will rise to 5.0% over the next 12 months, slightly lagging the national average projection of 5.3%. It is likely that the higher proportion of activity in the more pessimistic Manufacturing & Engineering and Energy, Water & Mining sectors in the South West is weighing on these sales expectations.
Companies in the region also reported that export growth slowed to 2.9% in Q2 2024, marginally above the historical average of 2.7% and broadly in line with the expansion seen nationally (3.0%). Businesses in the South West expect exports to continue to grow in line with the national average over the year ahead, with a 4.5% rise anticipated.
Input price, selling prices and profits growth
After softening in the two previous quarters, input price inflation in the South West ticked up to 4.9% in Q2 2024, the highest of any region in the UK. As inflationary pressures continue to dissipate in the year ahead, businesses in the region anticipate significant moderation to 2.8%, equaling the historic average.
At the same time, companies raised their selling prices by 3.5% in Q2 2024, above the national average increase of 3.2%. Unlike input prices, companies expect only a small reduction in the year ahead to 3.2%, still double the historical average (1.6%) and higher than any other region in the UK.
Companies in the South West reported a marginal slowdown in profits growth to 4.3%, however this was still one of the highest increases in the UK, behind only Wales. Growth will continue to increase over the coming year, with an anticipated rise of 5.1%. However, profits growth in the region is projected to lag the national average of 5.5%.
Labour market
Employment growth softened in the South West compared to the previous quarter, with the region reporting one of the lowest increases in the UK at just 1.6%. Businesses do not expect this sluggish performance to continue however and are planning to raise staff levels by 2.8% in the coming year, doubling the historical average (1.4%) and the joint-highest expected rise in the UK.
Despite a modest decline from Q1 2024, salary growth in the South West was strong compared to most other regions, at 4.0%. This increase was nearly double the region’s historical average (2.1%), but as inflationary pressures ease further in the coming year, wage growth should gradually ease too. Businesses are anticipating a 2.9% increase in salaries over the coming year compared to 3.2% nationally.
Business challenges
Despite a significant reduction in the proportion of citations from the previous quarter, regulatory requirements continue to be the most widespread growing challenge in the South West, with 35% of businesses reporting them as a rising issue. Customer demand is also a prevalent challenge, with 34% of companies reporting it as a rising issue in Q2 2024.
The proportion of businesses reporting late payments from customers as a growing challenge has seen a sharp rise in some regions compared to the previous quarter. In the South West, 30% of companies see late payments as a growing concern compared to 21% nationally, and it is now the third most prevalent challenge for businesses in the region.
Investment
Businesses in the South West slowed their capital investment growth marginally compared to Q1 2024, to 2.2%. Even with this moderation, it was still marginally above the historical average of 1.9%. Unlike most other regions, companies in the region are expecting to increase their capital investment growth over the next 12 months, to 2.7%. Only Scotland is expecting faster growth during this time, with the UK as a whole predicting an expansion of 2.1%.
R&D budget growth slowed in the South West to 1.2%, the lowest rise of any UK region in Q2 2024. Companies in the region are expecting to uplift R&D budget growth above the historical average (2.1%) to 2.2% in the coming year, which will also be the largest increase in the UK.
