The latest national Business Confidence Monitor (BCM) for Q1 2024 shows a significant improvement in sentiment compared to weak yet positive confidence in the previous quarter and the average for 2023. The index rose above its pre-pandemic average for the first time since Q1 2022, as economic prospects brightened.
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 15 January to 22 March 2024.
- The West Midlands was the only region to see confidence fall, reaching its lowest level for a year, but remains positive and above its historical norm.
- Domestic sales growth increased and the pace of future growth is projected to reach nearly double its historical average. However, expectations for export growth ‒ particularly significant for the region’s manufacturers ‒ are the weakest of all parts of the UK.
- Companies in the region foresee the joint highest growth in input prices next year and, while salary growth eased, businesses anticipate a similar rate of increase in the coming year.
- These cost pressures have meant businesses raised their selling prices at the same rate as the previous quarter but they plan slower rises.
- Regulatory requirements are now the greatest rising challenge faced by businesses in the region, overtaking customer demand.
- Growth in capital investment spending picked up and, unlike in many other parts of the UK, companies anticipate further improvement ahead. Businesses in the West Midlands also increased their R&D budgets but plan to scale back growth in the next 12 months.
Business confidence in the West Midlands
The West Midlands was the only UK region where, in Q1 2024, companies were less optimistic about the year ahead than compared to the previous quarter. The Business Confidence Index fell to +6.9 from +11.4 in Q4 2023 and was among the most pessimistic regions in the UK. Ongoing concerns about the weak exports growth and rising input inflation are likely weighing on sentiment in the region, yet confidence remained above its historical average (+4.8).
Domestic sales and exports
After a trend of weakening in previous quarters, companies in the West Midlands reported a relatively strong uplift in domestic sales growth, with a 4.0% increase that outpaced the national average (3.3%). Businesses in the region are predicting further strengthening of domestic sales growth to 5.8% over the coming year, nearly double the historical average (3.1%).
Export growth in the region matched the national rate of expansion at 2.8%. However, despite the expectations of a marginal uplift in sales abroad to 3.3%, companies in the West Midlands are the least optimistic compared to other regions and nations about the year ahead. This is somewhat concerning given the significance of exports to the region’s manufacturing base.
Business challenges
While still prominent, customer demand has become less of a widespread growing challenge for companies in the West Midlands, with 28% of businesses citing this issue in Q1 2024 compared to 42% in Q4 2023. Regulatory requirements are once again the most prevalent challenges for companies in the region, with 36% reporting it as a growing concern.
Despite slight reductions in the proportion of companies citing them as growing issues, competition in the marketplace continues to be a prevalent growing challenge for businesses in the region.
Labour market
There was a small increase in annual employment growth for companies in the West Midlands, to 2.0% from 1.5% in Q4 2023. Businesses expect workforce growth to continue at the current rate in the coming year, however, this projection is marginally weaker than the increase expected nationally (2.2%). The ability of businesses to find suitably skilled labour could be weighing on employment growth in the region, with the availability of management skills and non-management skills both rising in the latest quarter and running above the historical average as a growing concern for companies.
Salary growth in the West Midlands remained broadly similar to the previous quarter, rising by 3.4% in the year to Q1 2024 and is among the weaker rates of uplift nationally. That said, it is still notably ahead by historical standards for the West Midlands (2.0%). Companies anticipate that the rate of salary growth will ease slightly over the next 12 months, with an anticipated salary increase of 3.2% ‒ which again is at the lower end of the UK rankings, ahead of only Scotland and the North East.
Input and selling prices, and profits growth
Rising costs are likely impacting sentiment in the region as, unlike the trend seen nationally, companies in the West Midlands faced increased input cost pressures in Q1 2024, as input price inflation rose to 5.3%. This rise was behind only the East of England and was nearly double the historical average (2.8%) for the region. Businesses anticipate that these cost pressures will ease in the coming year, however, they are still expecting the joint highest input price increases in the UK.
Businesses increased their selling prices in line with the previous quarter. Selling prices are now 3.5% higher in Q1 2024 than a year ago. Companies are predicting the rate to moderate to 2.6% in the coming year, matching the national average. Profit growth has increased to 3.2% in the 12 months to Q1 2024, but companies forecast performance to improve in the next year, to 4.4%.
Investment
Annual growth in capital spending increased to 2.3% in Q1 2024, matching the growth seen nationally and ahead of the historical average for the region (1.8%). Companies in the West Midlands anticipate a comparatively strong uplift in investment over the coming 12 months, to 2.9% and above the rate projected for the UK (1.6%).
Businesses in the West Midlands raised R&D budgets by 2.1% in the year to Q1 2024, a similar rate to the UK average (2.0%). However, R&D budget growth is expected to be scaled back to 1.3%, falling slightly behind the UK average (1.6%) and the regional historical norm (1.8%).
