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Economic Insight

ICAEW Business Confidence Monitor (BCM): West Midlands

Q1: Business Confidence Index is now positive, but only marginally

The Q1 Business Confidence Monitor (BCM) shows nationally business confidence recovering back into positive territory, but still very weak, as companies are concerned over their future sales with continued high inflation and interest rates. There are also worries over how tight government fiscal policy will need to be, in the months and years ahead.

The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, nations, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 16 January to 23 March 2023.

  • The Business Confidence Index, while positive, is very weak and below the UK average.
  • Domestic sales growth is, however, outpacing the UK average. This should remain the case in the year ahead, although growth is expected to soften. By comparison, export growth has been weaker than at the national rate, but is expected to strengthen.
  • Challenges surrounding availability of skills and staff turnover are widespread but easing.
  • Fewer recruitment problems may help to explain why companies have the strongest outlook for employment growth across the UK and salary growth appears to be stabilising, albeit at a near-record rate.
  • Input price inflation remains elevated but is easing, and businesses expect a marked slowdown. The same also applies to selling price rises.
  • However, the investment outlook has dimmed. Growth in both capital investment and Research & Development (R&D) budgets is set to slow markedly.

Business confidence in the West Midlands

The Business Confidence Index for the West Midlands has risen to +1.2 in Q1 2023, after being in firmly negative territory through most of 2022. That said, the index is only just positive and is still below the UK average (+2.5). On balance, only businesses in the North West, Scotland and London are less optimistic about economic prospects.

Domestic sales and exports

Domestic sales growth has been healthy in the year to Q1 2023. A rise of 6.5% compares favourably with the UK average. The pace of growth is expected to soften in the coming 12 months, but should still surpass the UK average. In contrast, exports have risen by 3.7%, year-on-year, a rate that compares unfavourably with the UK average, although companies anticipate a stronger rise of 4.3% in the 12 months ahead. It is possible that depreciation of sterling against the euro, a small pick-up in European markets, and the reopening of the Chinese economy, are all lifting expectations here.

Business challenges

Business sentiment is clearly being dampened by the wide range of challenges that companies face. Customer demand is now the most prominent growing issue for businesses in the West Midlands. In Q1 2023, 40% of companies cite this challenge, meaning that the issue is only more commonplace in Wales and Yorkshire & Humberside.

The proportion of businesses being challenged by government support has also been trending upwards over the last two quarters, and now stands at 15%. The issue is only more prominent in the North East. And non-transport infrastructure problems are more widespread (23%) than at any point since mid-2007, likely reflecting problems relating to postal services, due to recent strikes.

Difficulties in the labour market remain widespread. The availability of non-management skills still sits among the most prevalent challenges in the region, with 34% of companies experiencing growing problems. This is closely followed by staff turnover, which is a source of difficulty for 31%. That said, the percentage of businesses citing each of these issues does now appear to be lessening, after surging to record rates during 2021 and early 2022. This suggests that recruitment difficulties are beginning to dissipate.

Labour market

The gradual moderation of labour market challenges will be helping companies to increase employment, which is rising at a faster rate (2.9%) than the UK average. Further still, businesses in the West Midlands have the strongest growth outlook of any UK nations or regions for staff levels in the 12 months ahead, with a 2.8% increase planned.

At the same time, salary growth looks to be stabilising in the region, although it remains at a very elevated rate (3.9%) when compared to the historical average. A similar outturn of 4.0% is planned for the next 12 months.  

Input and selling prices, and profits growth

Over the course of 2022, annual input price inflation in the West Midlands reached record rates, with the region’s large Manufacturing & Engineering sector being particularly vulnerable to supply-side problems. These cost pressures, however, appear to be easing. Input price inflation still does remain high by historical standards, but is below the region’s record rate of last quarter. The increase (5.6%) is also the slowest across the UK. Companies expect a markedly softer 3.7% rise over the next year, which is below the UK-wide outlook.

The direction for selling price growth is very similar to that for input costs. Price growth looks to have peaked in Q4 2022 (at 4.4%), and now stands at 3.8%. As input price inflation weakens, companies also intend to moderate selling price rises to 2.8%, which would be among the more modest gains across the UK.

The net effect of these price-cost dynamics is that profits growth (5.9%) is healthy compared to the UK average. Only companies in Scotland are reporting faster rises. A further 4.4% is forecast for the next 12 months, a pace that should outperform the UK average.


Less encouraging are the plans for investment in the region. Companies are increasing their capital spending by 2.3% in the year to Q1 2023, which marginally trails the UK average. R&D budgets are up by 2.1%, the slowest increase in the region since Q4 2021. Both forms of spending are expected to slow over the next year. Capital spending will rise by just 1.7%, while R&D budgets will only be 1.0% higher than the current level.