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.
- Sentiment in Yorkshire & Humberside was the highest of all UK nations and regions in Q1 2024, with the Business Confidence Index now standing at +26.1.
- Annual growth in domestic sales was the strongest in the UK, having risen from the previous quarter, while export growth was relatively weak, but companies are more optimistic about sales growth in the year ahead.
- Input price and selling price inflation both continued to fall with the trends expected to continue. However, salary growth remains elevated and companies anticipate it will remain high over the next 12 months.
- Profits growth is subdued but is expected to improve significantly in the coming year.
- Regulatory requirements are now the most widespread rising challenge facing businesses in Yorkshire & Humberside, displacing customer demand which was prevalent throughout 2023.
- Capital investment has been strong compared to other UK regions but is likely to slow in the coming year. R&D budget growth was the weakest across the UK and this poor performance is expected to continue.
Business confidence in Yorkshire & Humber
After a score of -0.4 in Q4 2023, the Business Confidence Index for Yorkshire & Humberside soared to reach the highest of any UK nation or region at +26.1 in Q1 2024. This outturn was also the largest improvement in confidence in the UK and the highest achieved in the region since Q3 2021. Sentiment is comfortably ahead of the UK (+14.4) and the historical average for the region (+5.1).
Domestic sales and exports growth
The rebound in business confidence was likely supported by strong annual domestic sales growth in the year to Q1 2024, with Yorkshire & Humberside recording the sharpest increase in the UK, at 4.1%. The region was one of the few to experience an uplift on the previous quarter. Businesses are optimistic that sales will improve further and grow by 5.1% over the next 12 months, in line with the UK average.
In contrast, Yorkshire and Humberside’s export growth was relatively weak compared to most other UK nations and regions over the past 12 months, at just 1.3%. However, businesses are expecting significant improvement in the year ahead, with exports growth projected to reach 5.5%, behind only the South West, further supporting business confidence.
Business challenges
Regulatory requirements are now the most widespread growing challenge in Yorkshire & Humberside, with 42% of companies reporting them as a growing concern. They have displaced customer demand which is now the third most prominent issue for businesses in the region, having been the most prominent issue throughout 2023. Encouragingly, there was a marked decline in the number of businesses citing customer demand as a growing concern ‒ at 32%, compared to 44% in the previous quarter.
Concern over competition in the marketplace has increased over the last two quarters, with 33% of businesses in the region citing it as a growing issue which is more prevalent in Yorkshire & Humberside than in any other UK region or nation.
Labour market
There was a small uplift in employment growth in Yorkshire & Humberside to 1.9% in the year to Q1 2024, with companies in the region growing their staffing levels at roughly the same pace as the national average. However, businesses in the region are the most optimistic in the UK for the year ahead, expecting to lift employment by 2.9%, nearly triple the historical average (1.0%).
The proportion of businesses citing growing concerns about labour market related issues, including staff turnover and the availability of management skills, have recovered to historical norms in the region. However, while the availability of non-management skills has improved it remains elevated as a growing concern for companies and was reported by 26% of businesses in Q1 2024 compared to the historical average of 19%. Alongside wider inflationary pressures, this could help explain why there was a modest increase in salary growth compared to the previous quarter. Salaries rose by 4.3% in Q1 2024, ahead of both the historical average for the region (2.1%) and the national average (3.7%). A modest slowdown to 3.9% is expected for the coming year but this is still ahead of the majority of UK regions.
Input price, selling prices and profits growth
Input price inflation eased further in Q1 2024, with growth slowing to 4.7% and matching the trend seen nationally. Companies expect cost pressures to continue to soften to 3.1% over the next 12 months, only marginally above the historical average (2.6%).
As input price pressures continued to ease, companies in Yorkshire & Humberside slowed the rate they are increasing their prices for the third consecutive quarter in Q1 2024, to 3.3%, similar to the increase across the UK as a whole (3.2%). Further moderation is expected over the coming year, with businesses forecasting prices to rise by 2.0%, the lowest increase expected of all UK regions and nations.
Ongoing cost pressures have weighed on profits growth, which remained relatively unchanged at 2.2% in the year to Q1 2024, lagging the historical average of 2.9%. However, the favourable outlook for input prices and sales has bolstered profit expectations, with companies in the region predicting a significant improvement in profits growth for the coming year to 6.2%, over double the historical norm (2.9%) and ahead of the projected UK average (5.1%).
Investment
Relatively strong domestic sales have helped support capital investment growth in Yorkshire & Humberside, which has been strong compared to most other UK nations and regions, with a 3.1% increase in the rate over the past year. This growth is expected to ease over the next 12 months, to 1.6%, marginally slower than the historical average (2.0%) but matching the projected UK rate. This slowdown in investment expenditure may be linked to the fact that 60% of Yorkshire & Humberside businesses were operating below capacity in the year to Q1 2024, the highest rate in the UK.
While capital investment was relatively strong, companies in Yorkshire & Humberside had the weakest R&D budget growth of any UK region over the past 12 months, at just 1.0%. This weak performance is expected to continue throughout the next 12 months, with a further slowdown to 0.3% expected, significantly underperforming the historical average (1.7%).
