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ICAEW Business Confidence Monitor (BCM): Yorkshire & Humber

Q2 2019: Subdued investment plans reflect underlying weakness in company sentiment

Company confidence has weakened further in Q2 2019. This is despite businesses reporting stable sales rises, slower cost increases and faster profits growth. Businesses nevertheless face several challenges, particularly in the labour market. And in the coming year, companies plan to moderate growth across all types of investment spending. 

Business confidence trend in Yorkshire & Humberside

The Business Confidence Index for Yorkshire & Humberside has fallen further in Q2 2019, to -21.9. This is the fourth successive quarter in which the region’s index score has been below zero. 

Exports and domestic sales

Although business confidence is weaker, sales growth within the region is fairly stable, with domestic sales (3.4% year-on-year) and exports (3.2%) expanding at broadly similar rates to a year ago. Such growth rates are also comparable with national rates in Q2 2019. 

Costs and profits

Businesses also report faster profits growth in Q2 2019, reflecting rises in sales combined with stable wage growth (unchanged from last year at 2.2%) and an easing of input price inflation, from 3.0% a year ago to 2.3% in the year to Q2 2019. 

Business challenges

Despite these positive developments, companies are facing challenges. Regulatory requirements remain the most widespread issue, with 47% of businesses reporting growing concern over these. There are also pressing labour market worries. Indeed, 27% of companies are becoming increasingly challenged by the availability of non-management skills, up from 18% a year ago. 

Investment

While overall company sentiment is down, investment growth among businesses is healthy. Notably, Research & Development (R&D) budgets are rising by 3.5%, compared to just 1.8% in the year to Q2 2018. Capital investment growth is marginally faster than last year, at 2.6%.

However, in the year ahead, businesses project only limited increases in spending, with growth across all forms of investment forecast to slow. Companies plan to moderate growth in R&D budgets and capital investment spending, to 1.8% and 1.3% respectively.   

Prospects for the next 12 months

Businesses expect the pace of exports and profits growth to ease, to 2.9% and 3.8% respectively. And little change is forecast for domestic sales, which are set to rise by 3.3% in the year to Q2 2020. This underscores the weakness in overall confidence that characterises businesses in Yorkshire & Humberside.