Q3: South West now the least confident region with sentiment falling to lowest level in five years.
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 exports 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 South West is the least confident UK region in Q3 2025 as sentiment dropped deep into negative territory, to -21.3.
- Exports sales growth declined but businesses expect a strong recovery as global uncertainty and tariff disruption subsides.
- Domestic sales growth edged ahead of the historical norm in Q3 2025 with a further uplift anticipated in the coming year.
- The tax burden remained the most widespread growing challenge, reaching another survey record high, while regulation was reported by over half of businesses.
- With persistent inflationary pressures, including rising input price inflation and stubbornly high salary growth, profits growth edged below the historical norm.
- Employment growth slowed significantly but businesses expect a return to the historical average next year.
- The capital investment outlook remains weak after a sharp slowdown in growth in Q3 2025, while the picture for R&D budgets is more positive, closely tracking the UK projection.
Business confidence in South West
The BCM score for the South West dropped into deep negative territory to -21.3, the lowest score in the region since Q3 2020. Businesses in the region are now the least confident in the UK, significantly below both the UK average (-7.3) and the historical norm for the South West (+3.6).
Like other regions, concerns over the tax burden ahead of the November Budget are clearly weighing on sentiment in the South West, with more pronounced worries about the issue possibly stemming about the impact of inheritance tax changes on family farms in the locally important agriculture sector and higher council tax rates on second homes impacting landlords in parts of the region. Regulation too is of greater concern in the region than nationally. Amid heightened global uncertainty, businesses in the region also reported slowing exports growth in Q3 2025.
Domestic sales and exports growth
Domestic sales growth rose to 3.2% in Q3 2025, broadly consistent with the regional norm (3.1%) and the UK average (3.0%). Businesses expect growth will rise to 3.9% in the coming 12 months, in line with the UK projection (4.0%).
However, exports growth slowed in the year to Q3 2025, dropping to 1.8%, the lowest rate since Q4 2024 and below the regional historical average (2.7%). The slowdown in exports growth is likely linked to the South West’s relatively high exposure to exports targeted at the US market. However, with trade deals progressing, including with the US, businesses are optimistic that global uncertainty will continue to fade and demand for exports will recover over the course of the coming year. They project that export sales will rise to 5.0%, second only to companies in the North West. It is likely that the expectations of Energy, Water & Mining and US-focused Manufacturing businesses in the region support this robust outlook.
Input prices, selling prices and profits growth
Input price inflation appears to be very sticky for South West businesses as they reported growth of 4.2% in the year to Q3 2025, up from the previous quarter and one of the highest rates reported UK wide. Companies anticipate input cost growth will ease to 2.9% over the coming 12 months, matching the historical average and similar to the UK projection (2.8%).
Linked to stubborn input price inflation, businesses raised their prices by 2.5% in the year to Q3 2025, above the national average (2.2%) and one of the fastest rates reported across the UK. Companies foresee slower growth in their selling prices next year, to 2.2% but above forecasts for the UK (1.9%) and the historical regional average 1.6%.
Annual profits growth in the South West eased slightly in Q3 2025 to reach 2.7%. While this was higher than the UK average (2.3%), it was down on the regional historical average (3.0%). With sales growth expected to gather pace and cost pressures to ease, businesses forecast profits growth will rise to 3.5% in the year ahead, below the national projection of 4.1%.
Labour market
Annual employment growth slowed sharply to 0.4% in Q3 2025, lower than the national average (0.9%) and one of the weakest rates reported across UK regions. However, businesses anticipate stronger growth in the year ahead, projecting a rise of 1.4%, matching the regional historical average and slightly ahead of the UK-wide expectation (1.2%).
After a slight rise last quarter, annual salary growth eased in Q3 2025, returning to the downward trend observed over the previous four quarters. However, at 2.9%, salary inflation remains markedly above the historical average (2.2%) but broadly in line with the UK (3.0%). Businesses in the region expect wage pressures to remain high over the coming year, projecting growth of 2.8%.
The availability of management skills ticked up as a growing challenge for businesses and, at 17%, is above the historical average, while concern about staff turnover is low, reported by just 12% of businesses compared to an average of 21% nationally. Businesses in the region have been maintaining their training budget growth above the historical norm (1.3%) but they expect to cut growth to just 0.2% in the year ahead.
Business challenges
Like most other regions, the tax burden was the most widely cited growing challenge for businesses in the South West in Q3 2025. The issue was reported by 62% of companies, the highest proportion ever reported in the survey and above the national average (60%). This likely reflects the potential impact of the changes in inheritance tax on family farms in the regionally significant agriculture sector, alongside the uplift in council tax rates on second homes impacting some landlords in parts of the region.
Regulatory requirements was the second most prominent concern, reported by 51% of businesses, the highest proportion since Q3 2018. Only Scottish businesses (61%) reported the issue more frequently this quarter. This is likely linked to responses from Property and Business Services businesses in the South West, with a spike in companies in these sectors reporting the concern nationally.
Late payments was reported as a rising challenge by 27% of business in Q3 2025 and only companies in Wales recorded a higher incidence of the issue. Meanwhile, concerns about customer demand and competition in the marketplace remain below their respective historical averages, having edged up in previous quarters.
Investment
Results for Q3 2025 show a deterioration in business investment in the South West, a further reflection of the increased pessimism in the region. Capital investment expanded by 0.8%, which is less than half the historical average (1.9%) and the national average (1.8%). The outlook is relatively weak, with companies planning growth of 1.1% over the next 12 months, among the lowest expected growth rates in the UK.
The picture for R&D budgets is more positive, as growth rose to 2.0% in the year to Q3 2025, above the UK average (1.8%) and matched the regional historical average. The planned growth of 1.5% next year is in line with the UK projection (1.6%).