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ICAEW Business Confidence Monitor (BCM): North West

Q4 2020: Companies report declining sales and growing concerns over demand

  • Ongoing difficulties relating to the coronavirus pandemic, perhaps combined with a lack of clarity over Brexit, is damaging business confidence in the North West
  • Sales and profits are declining sharply, as the percentage of companies citing customer demand as a more pressing issue has surged from a year ago
  • Late payments and transport problems are also becoming more widespread as growing challenges
  • Although sales and projections are already modest for next year, the start of a new lockdown in England in November will doubtless adversely impact the initial recovery in company performance

Business Confidence in North West

As a result of the ongoing challenges faced by businesses in the midst of the current health crisis, the North West’s Business Confidence Index is in negative territory at -17 for Q4 2020. Brexit uncertainty is also likely to be weighing down business sentiment in the North West. The EU market accounts for a large proportion of total exports from the region, making businesses vulnerable to tensions in UK-EU trade. 

Domestic sales and exports growth

In the year to Q4 2020, sales performance among businesses in the North West has been weak. Indeed, declines in domestic sales and exports of -3.7% and -2.6%, respectively, are both 1.5 percentage points worse than the UK average. And strikingly, these falls are substantially larger than those reported during the global financial crisis. 

Business challenges 

The declines in sales are associated with 56% of businesses now citing customer demand as a growing source of difficulty. This is the second highest proportion across the UK and is close to being 20 percentage points above the rate seen a year ago in the region. Along with other concerns, transport problems are now a more pressing issue for around a quarter of companies (26%), among the highest in the UK. This clearly relates to the direct impact of domestic and international lockdowns on company operations. 

Profits growth and late payment challenges

Against a backdrop of tough sales conditions, profits are 3.3% below the level they were a year ago. This is broadly comparable to the decline seen during the global financial crisis. This contraction would probably have been deeper without a considerable slowing of labour costs rises. Employment and total wage growth have moderated to just 0.3% and 0.5%, respectively, in the year to Q4 2020. Also affecting company finances, over a quarter of companies now say that late payments are becoming more of a problem, up from a year ago.

Investment growth

Nevertheless, it is encouraging that companies in the North West are continuing to invest during this difficult period. Growth rates for capital investment (1.0%) and Research & Development (R&D) budgets (1.9%) both stand among the fastest rates in the UK. That said, staff development budgets are broadly unchanged (0.2%) from their levels of a year ago, probably explained by the slow growth in employee numbers. 

Prospects for the next 12 months

Businesses project some modest improvements in domestic sales and exports growth (both 1.0%), although these trail the respective UK averages. This is also true for profits growth, also projected to increase by 1.0%. Businesses do anticipate faster rises in capital investment and R&D budgets than nationally, while staff budgets should increase in line with the UK average. 

While already being fairly muted, these expectations for company performance will inevitably be affected, at least in the short term, by the particularly severe problems experienced by parts of the region due to coronavirus, and the second lockdown in England. These will clearly result in declines in output across many sectors while restrictions last.