Sentiment tracked by ICAEW’s business confidence monitor for the second quarter for the region put confidence at 12.9 on the index, nearly triple the historical average but still below the national reading of 16.7.
The confidence reading was likely supported by strong domestic sales growth, which is forecast to increase further in the next year.
Companies in the West Midlands reported that profit growth improved for the second consecutive quarter in the quarter, with an increase of 4.2%, driven by domestic sales and increased selling prices, the latter which outstripped anywhere else in the UK. The region’s companies expect even higher domestic sales growth of 5.1% in the year ahead, though this will lag behind the UK-wide figure of 5.5%.
Export growth in the West Midlands was 2.3%, one of the weakest rises in the UK and only ahead of the North East. It is predicted to rise to 3.7% in the coming year, but this lags the national projected increase of 4.5%, likely a result of a larger concentration of the manufacturing and engineering sector within this region, which is likely contributing towards the predicted underperformance on exports, ICAEW said.
Despite rising confidence, businesses faced a number of growing challenges. The number of businesses reporting regulatory requirements as an issue stood at 36%, making it the most prevalent issue for businesses in the West Midlands.
Just over a third cited the tax burden as a growing issue, more than double the historical average for the region. Additionally, a third cited competition in the marketplace as a problem, while three in 10 of the region’s companies struggled with late payments, the joint highest rate in the UK and the highest rate reported in the West Midlands since the third quarter of 2020.
The West Midlands had the weakest employment growth of any region in the year to quarter two, with a similarly weak increase forecast for the coming year. This was possibly related to strong wage growth, which at 4.1% was more than double the usual historical rate for the region. Companies expect salaries to moderate in the coming year, with a 3.3% rise predicted. This would be broadly in line with the UK average.
Meanwhile, input price inflation in the West Midlands was significantly above the region’s historical average and also exceeded the national figure, ICAEW said.
Additionally, ICAEW said that companies were “downbeat” about investment in the region, with low expectations for capital investment and R&D growth.
Justin Kyriakou, ICAEW West Midlands regional director, said: “It’s pleasing to see business confidence in the West Midlands reaching a two-year high, with strong domestic sales growth and rising profits causing sentiment to soar ahead of the region’s historic average.
“Nevertheless, confidence is lagging behind the country as a whole, with companies in the West Midlands facing a number of challenges.
“We want to see the new Labour government work closely with the wider business community to achieve its mission of economic growth and to deliver a prosperous and productive UK economy.”
Nationally, business confidence rose to its highest level in over two years, likely driven by weaker input cost inflation feeding through into stronger profits growth and positive domestic and export sales projections, ICAEW said.
