ICAEW Business Confidence Monitor (BCM): East Midlands
Q3 2019: Company sentiment is negative amid weak sales performance and rising business challenges
Business confidence is still negative in Q3 2019 for the East Midlands. Global economic difficulties may be damaging company sentiment, particularly within the region’s important manufacturing sector. Companies are also reporting slower sales and profits growth, and rising concerns over demand factors. Reflecting that backdrop, businesses plan to restrain investment in the coming year.
Business confidence in East Midlands
Confidence among companies in the East Midlands remains negative in Q3 2019, at -6.1. Weakness in the broader world economy and mounting global trade tensions are likely to be weighing heavily on the region’s large manufacturing sector. The same is true for ongoing Brexit uncertainty, with the prospect of ‘no-deal’ of particular concern for the region’s manufacturers.
Exports, domestic sales and employment
Slower sales growth may also be hampering business confidence within the East Midlands. Exports have risen by the modest rate of 1.6% in the 12 months to Q3 2019, compared to 4.8% a year ago. And companies also report domestic sales growth of just 1.2%, which compares unfavourably with 4.4% from a year earlier. Weaker sales may also help to explain why employment growth has moderated, from 1.7% last year to 0.5% in Q3 2019.
In conjunction with this, the proportion of companies operating below capacity is the highest across the UK, with a clear upwards trend in recent quarters. In Q3 2019, 71% of businesses in the East Midlands report spare capacity, significantly higher than the 54% recorded in Q3 2018.
Company confidence may also be suffering from weaker profits growth, up by just 0.5% year on-year in Q3 2019. This is the slowest rate of growth since Q4 2010 and probably reflects the tougher market conditions facing businesses in the region.
With the sluggishness of sales growth, 45% of companies cite issues with customer demand as a growing challenge, which is the joint highest in the UK. This probably reflects the strong manufacturing presence within the region, with the sector continuing to face difficulties in terms of demand, particularly from external markets. In addition, nearly a quarter of companies report late payments as a rising issue.
Investment rates among businesses in the East Midlands are also muted. Companies are increasing capital investment by just 0.6% in Q3 2019, the weakest rate in the region for nine years. And staff development budgets are up by 1.3% in Q3 2019, compared with a 1.8% rise a year ago. That said, Research & Development (R&D) budgets are rising by 2.4%, relative to 1.8% in Q3 2018 year-on-year.
Prospects for the next 12 months
Companies foresee faster export and domestic sales growth compared to the past year, at 4.2% and 3.6% respectively. They also expect to achieve profits growth of 4.6%. However, investment expenditure is set to remain fairly subdued, with companies planning to increase capital investment by just 1.4%. And moderations are planned for R&D budgets, with a rise of just 0.8% over the next 12 months.