Further fall in business confidence in the North West

Business confidence in the North West has moved deeper into negative territory, according to the latest ICAEW (Institute of Chartered Accountants in England and Wales) Business Confidence Monitor.

At -14.4 in the first quarter of 2019, this is the weakest score recorded in the region for almost a decade, despite companies in the region reporting stable sales and profits growth.

This weak confidence reflects the uncertainty surrounding Brexit and more difficult labour market conditions.

Melanie Christie, ICAEW North West director said: “Companies in the region at the moment are unclear about the future.

“Directors have the exceptionally difficult task of explaining within their annual reports the impact Brexit might have on their business models and operations.

“As the roulette wheel continues to spin, UK plc is having to place its bets based on best guesswork – and the stakes could not be higher.

“Companies are making decisions now about jobs, supply chains, headquarters and asset locations- incurring significant, and possibly unnecessary, cost and upheaval.”

She added: “We fear the destructive effects of a ‘no deal’ outcome on the economy, so urge our politicians to work together to break the Brexit deadlock and help restore business confidence.”

The weakness of business sentiment is despite strong growth in sales achieved over the past 12 months in the North West.

At 4.3%, the rise in domestic sales is among the highest reported in the UK.

And although exports are increasing at the more modest rate of 3.2%, they are also in line with the UK average.

Steady sales growth is being accompanied by notable increases in employment. The number of employees is up by 3.4% year-on-year in Q1 2019; again the fastest rate in the UK.

Stable sales growth is also enabling profits to maintain growth at 4.5% year-on-year, the same as a year ago.

The pace would be stronger still if not for the slight uptick in input price inflation – to 2.8% in Q1 2019 – well above the rate at which selling prices are rising, at just 1.1%.

However, ongoing uncertainty over the UK’s planned withdrawal from the EU is likely to be a major factor unsettling businesses, but there are also other reasons for weakening confidence, despite the robust sales and profit growth.

Regulatory requirements are the most widely cited factor, with 52% of companies in the region mentioning them in the current quarter.

But other challenges are growing, in particular concerning the labour market.

Increased proportions of businesses report rising difficulties with both management skills availability and staff turnover, up from 13% and 18%, respectively, a year ago, to 23% and 26% in Q1 2019.