ICAEW Business Confidence Monitor (BCM): Northern England
Q4 2019: Business confidence hit by subdued sales performance and growing challenges
Company sentiment across Northern England is being hindered by weak domestic sales, exports and profits growth, all notably down on a year ago. As well as this, businesses report several growing challenges, particularly in terms of customer demand. And in the year ahead, businesses plan to restrict growth in their investment spending.
Business Confidence in Northern England
The Business Confidence Index for Northern England stands at -14 in Q4 2019 and is now back in firmly negative territory having been only just below zero in recent quarters. As in other regions of the UK, Brexit uncertainty is likely to be a key underlying factor impacting negatively on company sentiment.
Domestic sales and exports
As well as political factors, the fall in company confidence may partly be explained by slower expansion in sales. Domestic sales growth of 1.5% is down from 2.6% last year. Weaker still is export performance, expanding by just 0.7%, which is the region’s lowest rate since Q2 2013.
Selling and input prices, and profits
Amid tough sales conditions, companies are struggling to achieve any significant gains in selling prices. These are rising by just 0.6% in the year to Q4 2019. They also continue to trail cost increases for companies in the region. Input price inflation now stands at 2.3% and total wages are up by 2.4% over the past 12 months. The overall impact of this is that profits growth (2.2%) is slower than a year ago (2.6%).
Against that backdrop, customer demand is now a growing concern for 47% of businesses, compared to 36% a year ago. This is among the highest of any region. Late payments are also a growing source of difficulty for 21% of companies, which is above the UK national average. Notably, the proportion of businesses that cite access to capital as a growing challenge is also up from a year ago.
Despite slowing sales and mounting challenges, businesses continue to increase their investment spending. Indeed, capital investment is rising by 3.2% in Q4 2019, the fastest of any region in the UK. Research & Development (R&D) budgets (2.3%) and staff development spending (1.9%) are both increasing faster than their respective national averages.
Prospects for the next 12 months
Companies anticipate improvements in domestic sales and exports growth, of 3.3% and 2.3%, respectively. This in turn is expected to help bolster profits, with a projected increase of 3.2% in the year to Q4 2020. However, businesses have more muted expectations for their investment spending projections. Capital investment growth is expected to moderate to 1.9% over the next 12 months. Even weaker is the planned expansion in R&D spending of 1.2%.