Q3: Business confidence in the West Midlands falls deep into negative territory.
The latest national Business Confidence Monitor (BCM) shows that business sentiment deteriorated further into negative territory in Q3 2025. This increased pessimism is underpinned by elevated concern over the tax burden, as well as above-average inflation and weak exports sales growth, eroding businesses’ profit margins.
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 14 July to 24 September 2025.
- Confidence fell further into negative territory to -18.7, making the West Midlands the second least confident region in the UK.
- The Jaguar Land Rover cyber-attack impacted businesses in the region and there was a rise in reports of government support as a growing challenge, however concern about the tax burden reached another survey record high.
- Domestic sales and exports growth have been robust but are expected to weaken over the coming year.
- Employment levels fell during the survey period and the recruitment outlook is weak, with some skills supply issues still evident in the region.
- Cost and wage inflation pressures remain high and, while these are expected to ease, they are forecast to outpace the UK average next year.
- Capital investment growth has been scaled back, while R&D budget growth is the weakest in the UK with businesses planning a contraction next year.
Business confidence in West Midlands
In Q3 2025, business confidence in the West Midlands fell sharply to -18.7, its lowest level since Q4 2022. Sentiment remains below the UK average (-7.3), ranking second lowest of all UK regions, and remains well below the region’s historical average (+4.4).
The West Midlands’ significant manufacturing sector suffered another blow during the survey period, following the Jaguar Land Rover cyber-attack which reduced production, strained suppliers’ cash flow, and pushed back incoming orders, hitting overall confidence in the region and prompting calls for government support. More positively, the agreement in the UK-US trade deal to lower tariffs to 10% on a quota of UK-built cars should give car makers in the region a relative edge on EU rivals.
Alongside these concerns, reports about the tax burden reached another survey record high amid growing uncertainty ahead of the November Budget. In addition, Birmingham continues to receive negative press, including the ongoing bin worker strikes and the £148m in Birmingham City Council cuts in March. Taken together, these factors appear to be feeding the increasingly cautious investment outlook in the region.
Domestic sales and exports growth
Annual domestic sales growth accelerated to 3.9% in Q3 2025, above both the UK average (3.0%) and the region’s long-run norm (3.1%). At the national level, domestic sales growth was relatively strong in mainly service sectors including IT & Communications and Business Services. These likely supported growth in the West Midlands during the period, as Manufacturing sales were relatively weak. Businesses in the region are cautious about future expansion, projecting domestic sales growth of 3.3% over the next year, which is below the UK expectation (4.0%). This relatively pessimistic view could be linked to the wider impact on the Jaguar Land Rover supply chain, with reports that companies stopped production during the car-maker’s six-week shutdown that fell within the survey period.
Despite the issues at Jaguar Land Rover, exports growth rose to 4.1% in the year to Q3 2025, the strongest of any UK region and well above both the UK rate (2.4%) and the West Midlands’ historical average (2.6%). The 12-month outlook remains robust at 3.8% and compares favourably to the national projection (3.6%). The view is likely supported by the recent UK-US arrangement that lowers tariffs on a quota for cars built in the UK entering the US each year, improving relative competitiveness for the region’s automotive exporters.
Business challenges
Evidence of the impact of the Jaguar Land Rover cyber-attack and wider concern about public funding in the region was apparent in survey responses this quarter, with concern regarding government support rising sharply to 25%, up from 7% in Q2 2025. There were widespread calls for the government to step in to support the car-maker and businesses in its supply chain throughout September, with the government unveiling a £1.5bn support package at the end of the month, after the survey period had ended.
While customer demand was less widely cited as a growing challenge in the UK in Q3 2025, the proportion of businesses reporting the issue in the West Midlands rose to 49%, the highest in the UK and above both the national and regional historical averages (both 39%). Concern about regulations also rose to 43%, the highest proportion of businesses since Q2 2021, and above the historical norm (38%).
However, the primary growing concern among businesses in the region remains the tax burden, reported by 68% of businesses and reaching another survey historic high, second only to the South East and above the national average (60%).
Labour market
Businesses reported that staffing levels in the West Midlands fell by 0.3% year-on-year in Q3 2025, likely linked to the contraction in the locally important Manufacturing & Engineering sector. The West Midlands and East Midlands were the only two regions to report declining employment in the quarter. The employment outlook in the West Midlands remains weak, with companies predicting that headcount will rise by 0.5% over the coming year, below the regional historical average (1.0%) and the UK-wide projection (1.2%).
Annual salary growth was recorded at 4.0% in Q3 2025, the second highest of any UK region and above both the national average (3.1%) and the West Midlands’ historical norm (2.1%). Pay growth is expected to moderate to 3.1% over the coming year, above the national projection (2.7%).
Despite the cooling labour market, there is evidence that some skills supply issues linger in the region, with 27% of businesses citing the availability of non-management skills as a growing challenge, above the historical average (20%) and more widely stated than in most regions. Meanwhile, companies also reported that staff training budgets remained unchanged in the year to Q3 2025, the weakest outturn since Q2 2021, while growth of just 0.2% is planned for the year ahead.
Input prices, selling prices and profits growth
There was further evidence of the stickiness of inflation for businesses in the region this quarter. Annual input cost inflation ticked up to 3.9% in the year to Q3 2025, slightly above the UK average (3.8%) and well above the region’s historical norm (2.8%). Companies expect some relief over the next 12 months, with expectations easing to 3.1% compared with 2.8% nationally.
As input cost inflation continued to rise, businesses increased selling prices by 3.3%, up from 3.0% reported in Q2 2025 and the fourth consecutive quarterly rise. The rate in the West Midlands is higher than the national average (2.2%) and more than double the region’s historical figure (1.6%). Looking ahead, West Midlands businesses plan a slower pace of price increases at 2.4%, the joint highest across UK regions and higher than the UK projection (1.9%).
Despite uplifting their prices in recent quarters, increasing inflationary pressures are eroding profits growth in the region. Businesses reported that annual profits growth slowed to 1.8% in Q3 2025, below the UK rate of 2.3% and the region’s historical average (2.8%). Companies have also trimmed their growth projection for the year ahead to 3.0%, lower than the UK projection of 4.1%.
Investment
Against a backdrop of declining business confidence, weaker profits growth and rising costs, the investment environment in the region is deteriorating. Annual capital investment growth slowed to 1.8% in Q3 2025, while in line with the UK and historical averages, the growth rate in the West Midlands declined for the second consecutive quarter. Businesses plan to scale back capital expenditure growth to just 0.9% over the next 12 months, well below the national projection (1.7%).
R&D budget growth was flat in the year to Q3 2025 (0.0%), compared to national growth of 1.8% this quarter. This is the weakest outturn for the West Midlands since Q2 2023 and the lowest rate in the UK. Looking ahead, businesses plan to reduce their R&D budgets by 0.2% over the next year, the only region expecting budgets to contract, which is significantly below the UK projection (1.6%).