North West small businesses more optimistic than the national average as confidence returns

FSB publishes new research showing confidence is finally positive – but significant challenges remain, warns NW Regional Chair Holly Bonfield.

Small Business confidence in the North West has returned to positive territory, according to FSB’s latest North West Small Business Index for Q3 2023, rebounding after five consecutive quarters of negative scores.

The North West now displays a more positive outlook than the national average sentiment – standing at +3, up from -7 in Q2 2023 – with the overall score for the UK at -8.

Notably, utility costs have fallen considerably as a major concern in the region, from 33% of small businesses identifying them as a key worry in Q2 to 18% in Q3.

However, there is still some way to go before confidence levels reach previous heights, with small businesses facing up to a challenging winter and new year. General economic conditions (68%), consumer demand (39%), and appropriately skilled staff (26%) are the greatest perceived barriers to growth over the next 12 months in the North West.

“It is good to see that overall business optimism in the North West is finally in the positive after over a year of negative index scores, tracking ahead of the national average,” said Holly Bonfield, FSB North West Regional Chair.

“This hopefully indicates that economic uncertainty and, with fewer businesses reporting utility costs as a major concern, the stifling inflationary pressures we have seen are easing somewhat. However, the data also shows there are significant challenges ahead.

“Investment intentions in the North West are falling and lagging behind the national figure and revenues are struggling. Small businesses face many other challenges as well, including sluggish consumer demand and the availability of appropriately skilled staff.

“With the Autumn Statement in just a few weeks, it is important that national and local government produce effective pro-enterprise policies and create the support infrastructure we need for economic growth.

“Eliminating the scourge of late payment, for example, would add £2.5 billion to the economy and save 50,000 firms from going bust every year, and the archaic business rates system must finally be overhauled. In addition, the 75 per cent business rates discount for small retail, hospitality and leisure firms is due to run out at the end of March. The Chancellor must extend this to give relief to small businesses in consumer-facing sectors.”

Business Conditions

Despite the data showing overall confidence is more buoyant, Q3 revenue sentiment in the North West remains negative at -9 (down from -7 in the previous quarter). In all, 48% of small businesses reported a decrease in revenue, with 39% reporting an increase. Other regions, including the South West, North East and Yorkshire and The Humber (both -17%), performed worse on revenue.

A net balance of 8% expect growth in profits for the coming quarter. While positive, this is down from Q2 where the net balance stood at 13%. However, revenue outlook for Q3 in the North West is more positive than the net national average (which is 5%).

Employment

North West small businesses have reduced headcount in Q3, with a similar net drop in staff levels (standing at -4%) seen in the previous quarter. Overall, 16% have decreased and 12% increased staff numbers. Most small businesses in the region have had no change in staffing levels, with around two-thirds (67%) reporting headcount had stayed the same. The net change in headcount of -4% in the North West is slightly lower than the respective net score nationwide, which stands stagnant at net 0%.

For the coming quarter, the intention amongst North West small businesses is for net 0% change in headcount.

Wages

In all, 64% of small businesses in the region increased the average salary awarded over the past 12 months, similar to the 66% national average. The net change in salary for the North West in Q3 2023 (55%) is marginally higher than that seen during Q2 (59%).

Further, 72% expect to salaries to increase over the next 12 months. This predicted wage growth is on par with figures recorded in the previous quarter, where 71% anticipated wage increases.

Growth and investment aspirations

In Q3, 58% said that their growth aspirations in the next year were to grow either rapidly (increase turnover/sales by over 20%) or moderately (up to 20%). This is an improvement on the previous quarter (50%). Overall, net growth aspirations have increased from 35% in Q2 to 43% in Q3.

The investment intentions of North West small businesses have fallen since the previous quarter, now standing at net 0% compared to the net 3% in Q2. The stagnant investment expectation in the region underperforms the nationwide average in Q3 (which stands at net 6%).

While 32% of small businesses in the North West expect to increase investment levels in the coming quarter – greater than the proportion of 25% nationwide – far more expect to decrease investment in the region (32%) versus the UK average (19%).

Investment intentions in the North West perform on the lower end compared to other regions, as several anticipate higher levels of investment (including the East Midlands at net 13% and London at net 9%).