The latest national Business Confidence Monitor (BCM) for Q4 2023 shows a slight shift in sentiment within the quarter. However, the quarter-on-quarter improvement in sentiment is marginal, remaining broadly steady at a similar level over the last few quarters. Overall confidence continues to fall short of the pre-pandemic average.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 17 October to 15 December 2023.
- Sentiment in the South West turned positive in Q4 2023, rising above the region’s historical average, and is now higher than most nations and regions in the UK.
- Export growth has likely supported business confidence and is similar to the rate achieved in the previous quarter, aligning with the region’s historical average. Domestic sales growth has fallen sharply, but businesses are optimistic that both domestic and export sales growth will accelerate beyond their historical averages in the coming year.
- Customer demand and regulatory requirements are the joint-most widespread growing challenges, while concern over the tax burden reached a historic high. The availability of non-management skills has been trending upwards and staff turnover concerns eased this quarter but remain prominent.
- Input price inflation has eased from its record rate but remains high by historical standards, and businesses expect it to moderate further in the next year. Salary growth has eased considerably to the lowest level of any UK nation or region, with a similar performance anticipated.
- Profit growth fell notably in Q4 2023 but companies in the South West expect it to pick up and exceed the region’s historical average over the next 12 months. However, these expectations are more cautious than in other parts of the UK.
- The South West is the only region in the UK where businesses are reducing their capital investment spending, but they are more optimistic about the coming year. R&D budget growth is positive, albeit weak, and increases over the next 12 months are expected to remain at around the current rates.
Business confidence in the South West
The Business Confidence Index for the South West rose out of negative territory, up from -3.2 in the previous quarter to +8.3 in Q4 2023. Sentiment is now notably above the region’s historical average (4.0%) and it is stronger than most other nations and regions in the UK.
Domestic sales and exports growth
Strong export performance is likely to have uplifted business sentiment in the region, with sales up by 2.7% in Q4 2023 compared to a year ago. This rate of increase is broadly consistent with the previous quarter’s outturn and is in line with historical standards for the region. The outlook is more favourable as companies anticipate faster export growth in the coming 12 months, at 3.9%.
Annual domestic sales growth, however, has fallen sharply to 2.5% in Q4 2023, mirroring trends since mid-2022. Indeed, it is among the slower performing nations and regions in the UK. That said, companies predict a jump in the pace of expansion, to 5.4%, in the year ahead, surpassing the historical average of 3.1%.
Business challenges
Customer demand is the joint-most widespread issue facing businesses in the South West. Indeed, the proportion of companies citing it has been rising in recent quarters, standing at 31% in Q4 2023. Concerns about regulatory requirements remain prominent and are the other main issue for businesses but, at 31% in Q4 2023, are below the historical average of 40%.
One in three businesses also cited the tax burden as a growing issue – the highest level on record. The availability of non-management skills has been increasingly prominent and, with 28% of firms citing it as a growing challenge, it is one of the most widespread issues faced by South West businesses.
Some issues have become less prominent over time. The proportion of companies citing staff turnover as a growing challenge has steadily decreased in recent quarters and is now back down to the historical average for the region (19%). Concerns over late payments surged in Q3 2023, but this has eased significantly in Q4 to below the historic norm.
Labour market
Businesses in the South West expanded their workforce by 1.4% in the 12 months to Q4 2023. While this is slower than the previous quarter, it is in line with the historical norm for the region. Over the next 12 months, companies plan to raise the number of employees by a similar rate, and this is broadly on par with expectations for the UK.
Annual salary growth has eased considerably and, at 3.3% in the year to Q4 2023, it is rising more slowly in the South West than elsewhere in the UK. In the coming 12 months, businesses predict salaries will continue to rise at around the current rate.
Input price, selling prices and profits growth
Cost pressures in the South West have softened but remain high by historical standards. At 5.3% in Q4 2023, annual input price inflation may have passed its peak, and is down from the record high achieved in the previous quarter. And while businesses forecast it to moderate further to 3.2% in the next 12 months, it remains above the region’s historical average (2.7%).
Selling price inflation is moderating for companies in the South West. In the year to Q4 2023, prices were up by 3.2% compared to a year ago, which is lower than most UK nations and regions. Companies anticipate a further slowdown, to 2.7%, over the year ahead.
Annual profits growth is running at 1.6% in the latest quarter, and businesses expect it to accelerate to 3.7% in the year ahead. However, this would be slower than any other nation and region in the UK.
Investment
The South West is the only nation and region to have seen annual capital investment spending fall, by 0.5% in Q4 2023, having reached 3.2% in Q3 2023. Businesses are, however, more optimistic about the next 12 months, and growth is set to average 1.7% which broadly aligns with the regional and national average.
Companies continue to lift R&D budgets, although growth is also among the weakest in the UK at 0.9% year-on-year. R&D spending is expected to broadly maintain the current growth rate in the year ahead.
