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UK Business Confidence

By Chartered One

UK Business Confidence

Monitor Report Q3 2016 North West

Key highlights
In the Q3 2016 ICAEW UK Business Confidence Monitor (BCM), 103 senior business professionals in the North West were interviewed and record a Confidence Index score of +3.9. Confidence has remained broadly unchanged from the previous quarter, but is significantly lower than a year ago.

Confidence remains low but expectations are holding up

The current quarter has seen a welcome halt to the downward slide in business confidence in the North West, against a sustained fall nationally. Although the confidence index remains positive in the region, it stands at just +3.9 compared with +28.3 a year ago.

The decline in business confidence in the North West over the last year has coincided with increased uncertainty following the EU referendum result and a steady softening in financial indicators. Turnover growth is 2.5% year on year in the latest quarter compared to 4.4% in Q3 2015; nevertheless there are signs that the weakening trend has paused. Firms in the region have also been faced with input costs rising faster than the prices they are able to charge their customers, putting pressure on profit margins which grew at an annual rate of 4.3% this quarter. As with turnover, there are signs that the profit growth slowdown has plateaued as well.

In this context, businesses in the North West have eased back on the pace of job creation, to 2.4% year on year in Q3 2016. However, as with sales, the downward trend in the pace of growth seems to have levelled off

The unemployment rate in the region fell to 4.9% in the three months to May, one percentage point lower than the corresponding period in 2015. This may partly explain why growth in salaries remains steady in Q3 2016 at 1.8% year on year

Businesses in the North West are resilient in their expectations for the year ahead. Turnover is predicted to grow by 4.4% over the next 12 months and, although this is lower than anticipated in Q3 2015, it represents a stronger outturn than that achieved in the year to Q3 2016. The lowering of expectations is because businesses predict weaker growth in domestic sales than they did a year ago, even though their views on exports are broadly unchanged. The competitiveness of exporters in the region will be boosted by the depreciation of sterling, and this is likely to explain why the number of companies citing marketplace competition as a growing challenge has eased over the past year.

Fulfilling expectations of higher turnover will present challenges. The proportion of firms in the region already working at full capacity is at a record high (49%) and the availability of management skills remains a growing challenge for over a fifth of firms (22%). Businesses are responding by continuing to increase their capital spending by 2.4% and their workforces by 1.7% over the next year. Investment in staff development will also be important and, in this respect, companies plan to raise spending by 2.1% next year, in line with their expectations in Q3 2015.