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ICAEW Business Confidence Monitor (BCM): Northern England

Q2 2019: Companies are deriving confidence from faster sales and profits growth

The Business Confidence Index for Northern England is the least negative in the UK. Businesses are reporting faster sales and profits growth this quarter, and fewer companies report demand factors as pressing issues. Nonetheless, company confidence is negative, and businesses are more downbeat about their planned investment over the next year. 

Business confidence trend in Northern England

Business Confidence Index for Northern England is the least negative across all of the UK, being only marginally below zero, at -2.6 in Q2 2019. 

Domestic sales and exports

Business confidence is likely to have been helped by fairly robust domestic sales growth of 4.6% in the year to Q2 2019, which compares favourably with the 2.9% rate of 12 months ago. As well as this, exports growth (4.0%) remains stable, rising in line with last year. And consistent with this, a falling proportion of companies are operating below capacity within the region, down to 48% in Q2 2019. This is the lowest percentage for two years.  

Profits

Healthy sales growth also seems to have supported faster rises in profits. Growth of 4.0% is substantially up from the 2.1% achieved in the year to Q2 2018 and is among the strongest rates reported across all UK regions. 

Business challenges

In conjunction with this, a lower proportion of companies than a year ago report marketplace competition and customer demand as pressing issues. The most widespread challenge continues to be regulatory requirements, but only 43% of businesses now express growing concern over these, down from 53% a year earlier. The proportion of companies that report the availability of non-management skills as a source of growing difficulty is now 18%, lower than the 24% of a year ago. 

Investment

Despite these positive developments, the investment behaviour of companies in Northern England is somewhat mixed. Annual Research & Development (R&D) budget growth has been on a steady upwards trend in recent quarters, and now stands at 2.7% in Q2 2019. However, the pace of capital investment growth is slowing, from 3.0% a year ago to 2.0% in the 12 months to Q2 2019, while staff development budgets are rising at a similar rate to last year, at 2.5%. 

Prospects for the next 12 months

Businesses expect both domestic sales (4.4%) and profits (4.1%) growth to be comparable to the past year. In contrast, they project that exports will rise by the slower rate of 3.3% compared to last year, possibly reflecting the sluggishness of the world economy or concerns over Brexit. Companies also plan to moderate all forms of investment spending in the coming year. Both capital investment and staff development budget growth are set to slow to 1.5%, while R&D budgets are forecast to rise only by 1.7%. All are below the rates recorded in the past year.