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North West small businesses confidence slumps but still outperforms national average

North West small businesses confidence slumps but still outperforms national average

Economic uncertainty, stubborn inflation and other issues persist – but there are reasons to be positive, says NW Regional Chair Holly Bonfield


UK small business champion the Federation of Small Businesses (FSB) has published its latest North West Small Business Index, with figures for Q4 of 2023 showing that overall confidence in the region has fallen to -9 from +3 in the previous quarter.


The greatest perceived barriers to growth over the next 12 months in the North West are conditions in the domestic economy (60%), consumer demand (26%), utility costs (26%), labour costs (25%) and appropriately skilled staff (25%).


Significantly, utility costs are rising in prominence after previously falling from 43% in Q1 2023 to 33% in Q2, and then 18% in Q3.


However, with the national confidence figure even lower (at -15 in Q4) and the data showing the North West is the best-performing region on revenue and investment intentions, and also growth in employment and wages, there are reasons to be positive about the region’s economic outlook.


North West Regional Chair Holly Bonfield said: “Clearly, it is concerning that we have seen small business confidence fall back into negative territory after the positive figure recorded in the previous quarter.


“The spectre of utility costs has not gone away and is worryingly rising as a problem. In addition, economic uncertainty, labour cost issues and skills shortages are combining to undermine optimism across the region.


“However, it is important to take a step back and view the whole picture. When we do, we can see that there are reasons to be positive – on several key indicators the North West is performing strongly compared to other regions and the UK as a whole.


“Consumer demand is one of the main issues reported and growth aspirations are down, but the North West is actually the leading region on revenue performance and small business investment intentions. Staff numbers are increasing, as are wages, both outperforming the national figure.


“We will continue to press the Government for national policies that drive entrepreneurial success and growth, and work with local authorities across the North West to ensure small businesses can access the best support infrastructure possible. The latter is particularly important given that local funding is diminishing – so we need to do better with less.”


Growth and investment aspirations


Overall net growth aspirations have declined from 43% in Q3, to 32% in Q4. This quarter, 52% said that their growth aspirations in the next 12 months were to grow either rapidly (increase turnover/sales by over 20%) or moderately (up to 20%). This has worsened slightly when compared to the previous quarter, when it stood at 58%.


However, the investment intentions of North West small businesses have increased considerably compared to the previous quarter, now standing at net 21% compared to the net 0% recorded in Q3. The improved investment expectations in the region also outperforms the nationwide average in Q4 (which is net 8%).


In all, 37% of small businesses in the North West expect to increase investment levels in the coming quarter – greater than the 26% of those who indicate this nationwide. Looking at those who anticipate decreasing their investment, the North West is on par with the wider UK (16% in the region, vs. 17% nationwide).


All regions apart from East Midlands (net -8%) perform positively on investment intentions, with the North West performing the best of all. There is a 7% gap between North West (21%), and the next highest region, East of England (14%).


Business Conditions


Further, revenue sentiment in the North West has rebounded from the recent negative trend, which stretched back to Q1 2022, with a net figure of 9% reporting an increase in Q4 2024, compared to -9% in Q3. The North West is currently the most positive scoring region, with London just below (7%).


In all, 42% of small businesses in the North West reported revenue increasing during the period – an improvement on the previous quarter – and fewer (33%) reported a decrease compared to the Q3 (48%).


The future revenue outlook remains positive. A net balance of 7% expect growth in profits for the coming quarter. This is more or less on par with Q3, where the net balance stood at 8%. Revenue outlook in the coming quarter for the North West remains more positive than the net national average (which is 0%).


Employment and Wage growth


North West small businesses have increased headcount, with a net rise in staff levels for Q4 2023 (1%).


The employment picture over the preceding three months showed that 17% had decreased and 18% had increased staff numbers. The net employment level of 1% for Q4 reflects a more positive score compared to that reported in Q3 (net -4%).


Most small businesses in the region had no change in staffing levels in Q4, with just over half (57%) reporting headcount had stayed the same. The net change in headcount of 1% in the North West is higher than the respective net score nationwide, which stands with a negative outlook at -4%.


However, looking ahead, North West small businesses expect net -4% change in headcount for the next quarter.


A total of 67% of small businesses in the region increased the average salary awarded over the past 12 months – notably higher than the respective nationwide level (60%). The net change in salary for the North West in Q4 2023 has increased to 61% from Q3 (55%).


The current predicted wage growth is on par with figures recorded in the previous quarter, where 72% anticipated wage increases. In Q4 2023, 73% expect to see salary increases over the next year.