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.
- Business sentiment in the West Midlands improved and was comfortably ahead of the historical average but is still behind the UK average.
- This is supported by above average domestic sales growth which businesses anticipate will improve and despite weak export growth which is expected to prevail.
- The region also recorded one of the sharpest input price increases in the UK over the past year but is expected to soften significantly, while salary growth is predicted to remain well above the historical average.
- Climbing cost inflation meant companies raised their selling prices at a faster rate than any other UK region, but higher selling prices together with growing sales boosted profits growth for the second consecutive quarter.
- Regulatory requirements remain the largest rising challenge faced by companies in the region, closely followed by customer demand, the tax burden and competition in the marketplace. Late payments were cited by the highest percentage of companies since Q3 2020.
- Capital investment growth is expected to continue to deteriorate over the next 12 months, but companies in the West Midlands plan to raise their R&D budgets at a similar rate to the previous year over the next 12 months.
Business confidence in the West Midlands
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After dropping marginally in the previous quarter, business confidence in the West Midlands increased to +12.9 in Q2 2024, nearly triple the historical Index average of +4.9. However, even with this uplift the West Midlands is still behind UK the national average of +16.7.
Domestic sales and exports
Domestic sales continued to grow in Q2 2024, however the rate of expansion continued broadly unchanged from the previous quarter, at 3.9%. This remains ahead of the historical average of 3.1%. Over the next 12 months, businesses expect sales will pick up, with a 5.1% expansion anticipated. However, this increase is not sufficient for the region to keep pace with the projected national average of 5.3% over the next 12 months.
Unlike nationally, export growth in the West Midlands eased for the second consecutive quarter in Q2 2024. The 2.3% increase recorded by businesses in the region was one of the weakest expansions in the UK, only ahead of companies in the North East. Despite an anticipated uplift to 3.7% in the coming year, companies in the West Midlands have some of the weakest expectations in the UK, lagging the UK average projected rise of 4.5%. The struggles of the Manufacturing & Engineering sector are likely contributing toward the expected underperformance on this measure, due to the high concentration of the sector within the region.
Business challenges
The number of businesses reporting regulatory requirements as a rising challenges remained steady at 36% and was still the most prevalent issue for businesses in the West Midlands. However, this was still marginally below the historical average of 38%. After falling in the previous quarter, the proportion of companies citing customer demand as a rising issue increased to 35% in Q2 2024.
As well as these issues, there has also been a marked rise in the number of businesses reporting the tax burden (34%), over double the historical average for the region (15%). Other prominent concerns include competition in the marketplace (33%) and late payment from customers (30%), with the latter being the joint-highest proportion in the UK.
Labour market
Companies in the West Midlands recorded the weakest employment growth of any region in the 12 months to Q2 2024, with a 0.7% increase. Growth is expected to increase marginally above the 1.0% historical average over the coming year, with a rise of 1.3%, however this will still be the lowest increase of any UK region.
Salary pressures are perhaps contributing to the relatively weak appetite for recruitment growth in the region. Businesses in the West Midlands reported that wage growth picked up in Q2 2024 by 4.1%, significantly above the 2.0% historical average for the region and only weaker than the North West. Easing inflation should result in notable moderation in salary growth over the coming year, with companies in the region predicting a 3.3% rise, broadly in line with the UK average (3.2%).
Input and selling prices, and profits growth
Despite dropping marginally from the previous quarter, input price inflation remains high at 4.8% for businesses in the West Midlands, outpacing the national average. Over the coming year companies expect input price inflation to moderate significantly, with inflation forecast to fall below the 2.8% historical average, reaching 2.5%.
Persistent input price inflation in the region will have been factored into the prices West Midlands businesses charge their customers. Companies in the region raised their prices faster than any other UK region or nation in the year to Q2 2024, with an uplift of 4.2%. This growth was nearly three times the historical average for the West Midlands (1.5%). Over the next 12 months, companies are expecting to soften the rate at which they increase their selling prices to 3.1%, however this will still be one of the sharpest increases in the UK, well above the UK average of 2.3%.
Companies in the West Midlands experienced an uplift in profit growth for the second consecutive quarter in Q2 2024. Above-average domestic sales growth and increased selling prices likely underpinned the region’s expansion of 4.2%, which outpaced the national average (3.1%). In the year ahead, businesses expect further improvements to profits growth, with an anticipated increase of 5.1%, nearly doubling the 2.8% historical average for the region. However, the West Midlands is projected to slightly lag behind the UK average profits growth (5.5%) over the next 12 months.
Investment
The investment picture in the West Midlands is downbeat. Growth in capital investment spending declined compared to Q1 2024, with the West Midlands reporting one of the weakest expansion rates in the UK at just 1.5%. Businesses in the region also have the lowest expectations for the year ahead in the UK, with anticipated capital expenditure growth of just 0.6%.
Meanwhile, R&D budget growth also slowed significantly in the year to Q2 2024, with the rise of 1.4% among the lowest in the UK, only above the South West. Businesses in the West Midlands plan to hold budget growth steady at 1.4% over the coming year, marginally behind the national average (1.6%).
