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 confidence in Yorkshire & Humberside softened and although it now lags the UK it remains ahead of its historical average.
- Yet businesses in the region recorded some encouraging results. Annual growth in domestic sales and exports were among the strongest in the UK and companies anticipate further improvements for both.
- Another positive sign is the further easing in input price inflation and companies expect it to fall below the historical norm. Salary growth also eased and companies anticipate a similar growth rate, despite plans to increase recruitment over the period at the joint-highest rate in the UK.
- Selling price inflation also slowed for the fourth successive quarter and businesses expect further moderation.
- Profits growth increased in line with the historical average but remained lower than the national average, a trend anticipated for next year.
- Despite rising sales, customer demand was the most widespread growing challenge facing businesses in Yorkshire & Humberside. Competition in the marketplace, regulatory requirements and the tax burden and are also highly prevalent challenges.
- Capital investment and R&D expenditure by businesses in the region is expected to slow significantly after strong growth in the latest quarter.
Business confidence in Yorkshire & Humber
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After recording the highest growth of any UK nation or region in Q1 2024, the Business Confidence Index for Yorkshire & Humberside fell back to +14.4 in Q2 2024. Confidence still remained well above the historical average of +5.3, however, the region dropped below the national average (+16.7), which could be linked to a relatively larger dependence on the struggling Manufacturing & Engineering sector.
Domestic sales and exports growth
Businesses were less confident compared to the previous quarter, despite a strong increase in domestic sales in the year to Q2 2024. The growth in domestic sales continued to be among the strongest in the UK, at 4.2% compared to 3.3% across the country, representing a slight increase from the previous quarter. Domestic sales are forecast to continue to grow in the next 12 months by 5.0%, slightly below the expected UK average of 5.3%.
Export growth was also strong in Q2 2024, at 3.3%, behind only the East of England and the East Midlands. Businesses expect exports to continue to expand next year by 4.0% but, despite the positive trend, Yorkshire & Humberside is expected to lag the national average (4.5%). This weak outlook could be linked to pessimism in the Manufacturing & Engineering sector, which also expects subdued exports growth in the coming year.
Business challenges
Despite robust sales growth projections, customer demand was the most widespread growing challenge for Yorkshire & Humberside businesses in Q2 2024, with 42% of them reporting it as a growing concern, compared to 32% in the previous quarter. Concerns about competition in the marketplace rose again and were reported by 36% of businesses, more than in any other region. Meanwhile, the share of businesses citing regulatory requirements as a growing challenge declined but still impacted 36% of businesses.
Challenges relating to the tax burden have increased and were cited by 36% of companies in Q2 2024, the second-highest proportion across the UK. However, issues of late payment which have grown in some regions, were significantly less widespread in Yorkshire & Humberside.
Labour market
Employment continued to grow strongly in Q2 2024, with a growth rate of 2.1%, above the national average of 1.8%. Businesses anticipate this robust trend to persist over the next 12 months, with Yorkshire & Humberside, alongside the South West, expected to have the joint-fastest employment growth of all UK regions and nations, at 2.8%.
Despite the growth in employment, salary inflation eased. In Q2 2024, companies reported a 3.6% increase in wages, below the previous quarter (4.3%) and the national average (3.7%). This slowdown is expected to continue next year, with a projected growth rate of 3.5%, although this wage projection is faster than all regions and nations except Scotland.
Input price, selling prices and profits growth
Input price inflation continued to ease for the fourth consecutive quarter, reaching 4.6% in Q2 2024, marginally above the national average (4.4%). Companies in Yorkshire & Humberside are among the most optimistic for the year ahead, with input price growth expected to ease to 2.4%, below the national average (2.7%).
Selling prices followed a similar trend and inflation softened to 3.2% in Q2 2024, in line with the national average. Further moderation is expected in the next 12 months, with selling prices forecast to grow by 2.6%, marginally higher than the national average (2.3%).
Profit growth recorded a slight uptick in Q2 2024, bringing it back to its historical average of 2.9%, slightly lagging the national average of 3.1%. The anticipated improvements in sales and costs next year boosted profit expectations in the region. Businesses in Yorkshire & Humberside forecast growth of 5.3% over the next 12 months, just below the UK-wide average (5.5%).
Investment
The strong growth in capital investment that Yorkshire & Humberside reported in the last quarter has eased. In the year to Q2 2024 capital investment expanded by 2.3%, compared to 3.1% reported in the previous quarter. Yet, this is still an encouraging growth rate, above the historical average (2.0%), and in line with the national average (2.3%) but capital investment is expected to ease over the next 12 months to 1.3%. The slowdown could be linked to the fact that 56% of Yorkshire & Humberside businesses were operating below capacity in the year to Q2 2024, the highest rate in the UK.
R&D budgets rose rapidly in the year to Q2 2024, at 2.7%, but businesses expect R&D expenditure to soften over the next 12 months to 1.5%, broadly in line with the national average (1.6%).
