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ICAEW Business Confidence Monitor (BCM): Yorkshire & Humber

Q1 2019: Businesses are very cautious despite healthy sales growth.

Business sentiment in Yorkshire & Humber remains in negative territory in Q1 2019. This is despite continuing sales increases and stronger profits growth than a year ago. However, the overall weakness in confidence is revealing itself through investment plans for the next year, with growth across all types of spending forecast to slow considerably.

Business confidence trend in Yorkshire & Humberside

Similarly to the UK, business sentiment in Yorkshire & Humber is in negative territory for the third successive quarter, standing at -15.3 in Q1 2019. This is noticeably down from the +2.7 recorded a year ago. Brexit concerns are likely to be a key factor in the deterioration of company confidence over the past year.  

Exports and domestic sales

This caution is despite sales growth holding up fairly well. Exports are rising by 3.4% year on year, outpacing the national average and significantly up from the 1.5% recorded in the region a year ago. And domestic sales are growing at a pace that is broadly in line with the national figure, at 3.5%.

Profits, selling prices and input prices

Companies also report stronger profits growth in the year to Q1 2019, increasing by 2.7% compared to 2.2% a year earlier. Profits growth is being supported not only by improving sales, but also by selling price increases. Indeed, companies are achieving relatively strong rises in the prices charged to customers (1.9%), particularly when compared to the national average (1.1%). And input price inflation has eased slightly in the past year, from 3.0% in Q1 2018 to 2.7% in Q1 2019 year on year.

Business challenges

Although sales performance is relatively healthy, 42% of companies cite rising concern over competition in the marketplace. This is the highest proportion in the UK and emphasises the underlying weakness in sentiment among businesses in Yorkshire & Humber. Meanwhile, a rising proportion of businesses (23%) are becoming increasingly challenged by the availability of management skills. 

Investment and expectations

Despite a year of weak confidence, investment spending is holding up well. Indeed, capital investment is rising by 3.5% in Q1 2019 year on year. However, companies are set to be markedly more restrained in the coming year, with growth across all forms of investment forecast to diminish. Businesses project that staff development budget growth will slow from 2.0% this year to 0.6% in Q1 2020, year on year. And poorer still is their outlook for capital investment, with expected growth of just 0.2% over the next year. Those moderations reflect the economic uncertainty that businesses face due to Brexit.

Prospects for the next 12 months

In contrast, businesses do expect some improvements in domestic sales and profits. The pace of domestic sales growth is set to increase (to 4.1%), while exports are forecast to expand at the slightly slower rate of 3.2% when compared to the past year. Overall, a slight uptick in profits growth is projected too, with help from a further easing of input price inflation to 2.1%.