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Economic Insight

ICAEW Business Confidence Monitor (BCM): West Midlands

Business sentiment remains very weak

The latest Business Confidence Monitor (BCM) shows business confidence falling further. Difficult economic conditions continue, though there has been some easing in the political turmoil of the previous period, which seriously unsettled financial markets. As a result, some economic stability has been restored, even though September’s events have resulted in higher interest rates, taxes and government borrowing, and lower government spending. But the global economic background continues to look very challenging.

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 interviewing is continuous, the latest findings are based on the period 17 October to 16 December 2022.

  • The Business Confidence Index sits in firmly negative territory, as it has done for each of the last three survey periods.
  • Domestic sales are rising at the slowest rate across the UK. Export growth is underperforming against the UK average.  
  • Customer demand is a widespread challenge for businesses. Access to capital and bank charges are also becoming much more prominent issues.
  • Challenges surrounding skill availability and staff turnover are widespread but easing. This may be linked with businesses planning to moderate the pace of employment growth in the next year.
  • Annual input price inflation has reached a new record-high, although companies anticipate an easing in the year ahead.
  • The investment outlook has dimmed. Growth in both capital investment and Research & Development (R&D) budgets is set to slow markedly.

Business confidence in the West Midlands

The Business Confidence Index for the West Midlands is in firmly negative territory. At -19.7, the Index is closely in line with the reading from the previous survey period (-19.9), a level way below the historical high of +55.8 reached in Q3 2021.

Domestic sales and exports

In the context of the performance of other UK nations and regions, domestic sales growth is weak in the West Midlands. Sales here are up by 4.3%, the slowest outturn across the UK. And in the year ahead, businesses anticipate growth moderating to 3.5%. With the exception of the East of England, this is the most subdued regional outlook. Moreover, exports have risen by 2.9%, year-on-year, a rate that compares unfavourably with the UK average. In contrast to domestic sales, however, companies anticipate a stronger rise of 4.6% in the 12 months ahead. It is possible that the recent depreciation of sterling against other major currencies is supporting expectations here.

Business challenges

Business sentiment is clearly being hampered by the wide range of challenges that they are dealing with. Reflecting the subdued domestic sales performance, customer demand is among the most prominent growing issues for businesses. Indeed, 36% of companies cite this in the latest survey period, meaning that the issue is only more commonplace in the South West.

Financial challenges are also coming to the fore. The proportion of businesses being challenged by access to capital is trending upwards, and is now reported by 20% of businesses, the highest rate since Q1 2013. Bank charges, although historically a minor issue, are now also a more pressing problem for 14% of businesses, the most elevated since Q2 2014.

Difficulties in the labour market remain widespread. The availability of non-management skills remains the most prevalent growing challenge in the region, with 38% of companies experiencing problems. This is closely followed by staff turnover, which is a source of difficulty for 32%. That said, the percentage of businesses citing each of these issues does now appear to be easing off, after surging to record rates during 2021 and early 2022. This suggests that recruitment difficulties are beginning to ease.

Labour market

The gradual easing of labour market challenges probably also reflects weakening demand for labour. The pace of employment growth (2.2%) trails all other UK nations and regions, and companies plan only a very small 1.1% rise in staff levels over the next year. Along with Scotland, this is the weakest outlook across the UK.

In terms of salary growth, a rise of 4.0% in the latest survey is in line with the UK average. Businesses plan a more modest 3.3% increase in the year ahead. While this is elevated when compared to historical rates in the region, largely due to high inflation pushing up wage claims, it is the slowest planned increase across the UK.

Input and selling prices, and profits growth

Companies are facing tremendous input cost pressures. Annual input price inflation has been trending upwards over the last year, in part because of ongoing supply-chain disruptions, but also because of higher energy and commodity prices due to the Ukraine-Russia war. Input price inflation now stands at 6.2%, the fastest pace since the survey began in 2004. Input cost rises have been particularly pronounced in Manufacturing & Engineering, a sector that is very important to the West Midlands’ economy. However, companies do anticipate input price inflation softening to 4.2% in the coming 12 months.

Selling prices are up by 4.4% in the latest survey period. Only businesses in the South West and Yorkshire & Humberside achieved stronger gains. A slower 2.8% increase is expected over the next 12 months, mirroring the projected slowing of input price growth.

The net effect of these price-cost dynamics, along with comparatively slower rises in domestic sales, is that profits growth (2.2%) is weaker than in any other UK nation or region. A modest improvement to 3.0% is forecast for the next year, although this is still the second weakest outlook, just ahead of the East of England.


Despite this difficult backdrop, it is encouraging that businesses are still increasing their capital investment. Spending here is up by 3.2%, a rate that matches the UK average. The same is true for R&D budgets, which are rising at the same rate as the whole of the UK (2.2%). However, the weakness in business confidence is revealing itself in the outlook for the coming year. Growth in both capital spending and R&D budgets is expected to slow to just 0.7% and 1.2%, respectively. This softening of investment plans is a concerning development. The region’s large manufacturing sector is reliant on both capital spending and R&D investment for future productivity gains and enhancing the competitiveness of companies in domestic and international markets.