Q1: Confidence in the West Midlands dropped further in Q1 2025.
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 10 February to 27 March 2025.
- Business confidence in the West Midlands fell to -8.6 in Q1 2025, significantly below its historical norm and the UK average.
- Companies saw an improvement in domestic sales growth over the past year, while exports growth remained unchanged. Businesses anticipate a marked uplift in domestic sales growth in the coming 12 months, however, exports growth is expected to continue at a similar rate.
- Both input and selling price inflation increased over the year to Q1 2025, but price pressures are expected to soften. Wage growth eased, though companies forecast a marginal uplift in salary expansion over the year ahead.
- Annual profits growth ticked down, but business foresee stronger sales alongside lower cost pressures improving the outlook for profits growth.
- Customer demand was the most widespread rising challenge in the region, followed closely by the tax burden.
- Capital investment growth was relatively strong in the year to Q1 2025, but companies plan to significantly cut the rate of expansion. However, after slowing recently, businesses expect to increase R&D budget growth.
Business confidence in West Midlands
The Business Confidence Index in the West Midlands decreased in Q1 2025, falling to -8.6 and taking confidence to its lowest level since Q4 2022. Sentiment is weaker than the UK (-3.0) and is notably below the region’s historical average (+4.8).
Increased uncertainty in both the domestic and global economies is likely contributing to this drop in confidence. Companies in the region are increasingly concerned about how the tax increases announced in the autumn Budget will affect their business over the coming year, while the demand for UK goods from abroad has fallen significantly in recent months, undoubtedly affecting the region’s large manufacturing base. In addition, the announcement of 10% tariffs on UK exports to the US and larger tariffs on car exports will have been unwelcome news for exporters and vehicle manufacturers alike in the West Midlands. Birmingham has also received significant negative press in recent months, including the bin worker strikes, double-digit council tax rises, and the bankruptcy of the city council, leading to concerns that the damage to the reputation of the area may impact inward investment.
Domestic sales and exports growth
Despite this fall in confidence, companies in the West Midlands recorded an annual domestic sales growth of 3.9% in Q1 2025. This expansion is among the fastest in the UK, exceeding both the national (3.4%) and historical (3.1%) averages. Businesses expect stronger domestic sales growth in the year ahead, and the projected increase of 5.2% is higher than all other regions of the UK except the North East.
However, businesses in the West Midlands reported exports growth of just 2.1% year-on-year in Q1 2025. This increase is relatively weak compared to the rest of the UK, lagging behind the national average of 2.8%. It is also softer than the region’s historical average of 2.5%. Companies anticipate that exports will increase at a slightly faster pace of 2.2% over the next 12 months. However, this will be the slowest expansion in the UK and weaker than the projected national growth rate (4.0%).
The 10% tariffs introduced by the US on 5 April present a downside risk to the outlook for export growth. The West Midlands is particularly vulnerable, with exports to the US accounting for a higher share of total exports compared to any other UK region. The region’s reliance on the automotive and machinery manufacturing sectors, which depend on long, international supply chains, further increases its exposure to tariffs.
Business challenges
Despite the robust annual domestic sales growth, customer demand was the most cited rising challenge in the region, with 52% of businesses reporting it as a growing issue and at its highest since Q3 2012. The issue was more commonly reported by businesses in the West Midlands than in any other UK region.
As with most other UK regions, the proportion of companies reporting the tax burden as a growing challenge surged to 50% following the tax rises announced in the autumn Budget. This proportion represents a historic high but is lower than the national average (56%). Regulatory requirements were also a commonly cited challenge, with 41% of businesses reporting them as a growing issue.
Labour market
Businesses located in the West Midlands increased their staff levels by 1.1% over the year to Q1 2025, a marginally stronger expansion than the historical average (1.0%). Still, the increase is slightly weaker than the UK-wide employment growth of 1.2%. Companies anticipate raising staff levels at a marginally faster pace of 1.4% over the year ahead, close to the national projection of 1.5%.
Although labour demand grew at a faster pace, annual wage growth eased further in Q1 2025. At 2.8%, wage inflation was at its softest rate since Q1 2022 and weaker than in most other UK regions and the UK average of 3.1% year-on-year. However, over the coming 12 months, businesses expect wage inflation will rise to 3.1%, ahead of the national projection (2.9%), with only companies in the North East anticipating a sharper increase in pay. This could possibly be explained by the proportion of businesses reporting staff turnover as a growing challenge in the region. Of the businesses surveyed, 29% reported staff turnover as a rising issue, making it a more widespread challenge for businesses in the West Midlands compared to any other region.
Input and selling prices, and profits growth
Annual input price inflation increased in Q1 2025 to 3.8%, a rate well above the historical average (2.8%). That said, input price growth in the West Midlands remains among the lowest in the UK and is marginally below the national average of 3.9%. Companies expect input price inflation will moderate over the year ahead to 3.3%, but this will be among the largest increases of any UK region.
As input price growth increased, selling price inflation also picked up to 2.4% over the year to Q1 2025, exceeding the 2.2% rise in prices at the national level. Businesses in the region plan to reduce the pace at which they increase their selling prices to 2.0% over the next 12 months as input cost growth recedes. This projected growth is for a slightly softer rise than the anticipated UK average of 2.1% but above the region’s historical average of 1.5%.
Annual profits growth softened in Q1 2025, dropping to 3.2%, as higher input price inflation outweighed the effect of stronger domestic sales and selling price growth. However, the expansion in profits outperformed both the historical average of 2.8% and the national average of 2.7%. Businesses expect profits to rise at a markedly faster pace next year, with a growth of 4.5%, though this expansion will lag the anticipated UK-wide increase of 4.7%.
Investment
Companies in the West Midlands increased capital investment by 3.1% year-on-year, outpacing almost all other UK regions and significantly above the region’s historical average (1.9%). Although profits are expected to increase at a faster rate over the next year, businesses in the region plan to slow investment growth significantly to 0.9%, one of the weakest planned increases in the UK.
R&D budget growth slowed to 1.0% over the year to Q1 2025, weaker than both the historical norm (1.8%) and the UK average (1.5%). Businesses expect to increase their R&D budgets at a faster pace of 1.5% over the coming 12 months, matching the projected national expansion.