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 has risen sharply in Yorkshire & Humberside, and is now higher than in any other UK nation or region.
- Export performance compares favourably with the UK average, with further rises expected. The outlook for domestic sales is the strongest across the UK, following a modest outturn in the year to Q1 2023.
- Challenges relating to the availability of non-management skills and staff turnover have become less widespread in Q1 2023. However, issues with bank charges and the tax burden continue to be elevated in the region.
- Customer demand and regulatory requirements are now, once again, the most common growing challenges, after being less prominent over the past year.
- Businesses have increased employee numbers over the past 12 months, and plan even stronger rises over the next year. Salary growth is well above the region’s historical average, and this is expected to remain the case.
- Annual input price inflation is rising at the fastest pace since the survey began, but should ease considerably. Higher selling prices, combined with strong sales expectations, mean profits are expected to rise sharply.
- However, plans for both capital investment and Research & Development (R&D) budgets are subdued, with growth in both set to be moderated.
Business confidence in Yorkshire & Humber
The Business Confidence Index for Yorkshire & Humberside has improved considerably in Q1 2023, and now stands at +13.5. This is a higher reading than any other part of the UK.
Domestic sales and exports growth
Domestic sales increased in Q1 2023 by 3.9%, year-on-year, but are expected to rise by the faster pace of 5.8% in the 12 months to Q1 2024, in contrast to the UK pattern which is for sales growth to slow. This is likely to be a major factor behind the strength of confidence in the region. Reinforcing that, export growth stands at 4.6%, comfortably above the UK average and the fastest outturn in the region since the first quarter of 2014. Companies expect a marginally slower rise of 4.1% in the year ahead, although this would still be more than one percentage point faster than the region’s historical average.
In Q1 2023, issues relating to the labour market, although still elevated when compared to historical norms, have eased for businesses in Yorkshire & Humberside. The availability of non-management skills and staff turnover are no longer the most widespread growing challenges for companies. The former is cited by 34% of companies, while the latter is a growing source of difficulty for 26%. For both issues, these are the lowest rates of incidence since mid-2021.
Regulatory requirements are reported as a growing issue by 36% of companies, making it the second most widespread concern in the region, behind customer demand (43%).
Among other challenges, non-transport infrastructure problems have continued to rise in prominence. In Q1 2023, 17% of companies cite this, making it more widespread in the region than at any point since late-2009. This challenge includes issues relating to communication and postal services, so recent strikes are likely to be a factor here.
As well as this, financial challenges remain elevated. Bank charges are a growing issue for 15% of companies, above the historical average of the last decade, and reflecting higher interest rates. The tax burden has also become a more prevalent issue in recent survey periods. In Q1 2023, 24% of businesses mention this as a rising concern, 10 percentage points above the historical average for Yorkshire & Humberside.
Businesses expect the pace of employment growth to strengthen in the coming year, from 1.9% to 2.4%. Annual salary growth is already strong by historical norms, at 3.8% year-on-year in the latest quarter, while a further 4.5% increase is expected in the 12 months ahead, the joint fastest increase across the UK, along with the East of England.
Input and selling prices, and profits growth
Over the course of 2022, businesses in Yorkshire & Humberside faced stronger input cost pressures than those in most other UK nations and regions, probably reflecting the importance of manufacturing, and especially the chemicals sector in the region, along with energy generation. And this remains true in Q1 2023. Against a backdrop of ongoing supply-side disruptions and high commodity prices, input price inflation stands at 6.3%. This is a faster rate than the UK average and is the sharpest rise in the region since the start of the survey in 2004.
Businesses are, however, expecting a marked slowdown in input price inflation over the next 12 months, to 3.7%. With the exception of Scotland, this is the softest outlook for input prices across the UK, and reflects the moderation in global energy and commodity prices over recent months. In turn, although selling prices charged to customers are rising at a near-record high for the region, they are expected to increase at the more modest rate of 2.4% in the year to Q1 2024.
The particularly strong outlook for domestic sales growth, combined with the expected easing of input price inflation, means that profits for companies in Yorkshire & Humberside are forecast to rise more sharply than in any other UK nation or region. The increase of 3.7%, year-on-year, in Q1 2023, is set to be followed by 6.5% in the 12 months ahead.
Despite the improvement in overall business sentiment, the outlook for investment remains subdued. Annual capital investment spending is up by 3.4% in Q1 2023, while R&D budgets are rising by 1.8%. However, in the year ahead, companies plan to increase the former by just 1.5%, and the latter by a mere 0.7%. Both rates trail their respective national projections, with only companies in the South West having weaker plans for R&D. This weakness in both capital spending and R&D budgets is a worrying development, given the important role of both in enhancing productivity and, thus, making businesses more competitive in both domestic and international markets.