Businesses in the West Midlands are among the most pessimistic in the UK after confidence in the region slipped to its lowest level for a year, amid concerns over weak exports growth and rising input prices, a survey of business leaders has found.
Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q1 2024 put confidence at 6.9 on the index, down from 11.4 in the previous quarter. The West Midlands was the only region where business confidence fell, the report found, despite posting the highest reading in the country in Q4.
Confidence was likely hit by businesses’ expectations for comparatively weak exports growth next year, which at 3.3%, was the lowest outlook in the UK. This would be particularly concerning for the region’s large manufacturing base, ICAEW said.
However, companies in the West Midlands expect domestic sales growth to increase at nearly double the historical average, following a strong uplift in Q1 2024.
As set out in a series of recommendations made to all political parties ahead of the upcoming General Election, the Institute has called for a new vision for a prosperous and productive UK economy that supports businesses in the next parliament.
Justin Kyriakou, ICAEW Regional Director for the West Midlands, said: “Business confidence in the West Midlands appears to be in freefall as companies grapple with diminishing exports growth and rising costs, leaving the region’s important manufacturing sector exposed.
“After a positive uptick in confidence in the previous quarter, the reality that the West Midlands is the only region to see a fall in sentiment in Q1 is a worry, and one that will be exacerbated by continuing challenges around regulatory requirements and customer demand, not to mention expected input cost inflation being the joint-highest in the country.”
Confidence marred by rising costs
Businesses in the West Midlands reported a rise in input price inflation, at nearly double the historical average and behind only the East of England. This was in stark contrast to the national picture, where cost pressures eased, the survey found.
While companies expect these cost pressures to subside, they still anticipate the joint highest input price increases in the UK in the year ahead.
Businesses also expect salary growth to slow over the next 12 months, despite remaining largely unmoved in Q1 2024. Only businesses in Scotland and the North East expect a slower rate of growth in the next 12 months, the BCM found.
These cost pressures meant businesses increased their selling prices in line with the previous quarter, though slower rises are expected in the year ahead.
Meanwhile, regulatory requirements remained the most widespread challenge, cited by 36% of businesses in the West Midlands, while 28% said customer demand was a growing concern, down from 42% in Q4.
Growth in capital investment picked up in the year to Q1 2024 and, unlike in many other parts of the country, it is set for a strong uplift next year.
Nationally, business confidence more than tripled to 14.4 on the index, surpassing the pre-pandemic average for the first time in two years, as economic conditions improved. The boost was likely underpinned by positive sales and exports projections for the next 12 months, ICAEW said.
