FD Index 2024: A tale of two regions

Businesses in the North of England are more likely to face challenging financial headwinds over the next 12 months compared with their peers in the South, finds new research by Price Bailey. These headwinds include a potential fall in demand for their goods and services and barriers to raising their prices.

Growing pains

According to the Organisation for Economic Co-operation and Development, the UK economy is set to grow by a mere 1.1% this year. While this growth rate is comparable with other advanced economies such as Canada and France, the low-growth environment is a hindrance to businesses looking to expand. The research reveals a regional divide, with northern businesses more likely than southern businesses to face growth challenges.

Despite the UK’s modestly improving economic outlook, a quarter (25%) of finance directors based in the North expect their company’s volume of products and services sold to decrease over the year ahead. Yet just 12% of southern finance directors say the same.

Furthermore, finance directors in the North are less likely than their southern counterparts to believe that the volume of products or services sold by their business will rise over the next 12 months. Just over half (51%) of northern finance directors forecast an increase, compared with 72% of those based in the South.

In the year ahead, will the volume of products or services sold increase or decrease when thinking about driving your revenue changes? (North-South divide)

Prices will keep going up

Most UK finance directors across the UK (63%) expect the price of their goods and services to increase over the next 12 months. In fact, over a third (37%) of southern finance directors and a fifth (20%) of northern finance directors expect prices to increase significantly. This is despite UK inflation having fallen to 2.2% in August 2024, down from 6.7% a year earlier.

Businesses could be looking to pass on rising costs incurred in recent years to consumers through higher prices for goods and services. These costs may include increases in the National Minimum Wage (NMW). Higher prices would help them to meet their revenue targets.

Northern businesses are generally less likely than southern businesses to raise the prices of their products or services, however, likely reflecting the lower household disposable incomes in the North. Businesses that don’t increase their prices could end up either having to absorb higher wage costs or reduce the size of their workforce.

In the year ahead, will the price of products or services sold increase or decrease when thinking about driving your revenue changes? (North-South divide)

Unrealistic revenue expectations?

Although northern finance directors are generally less optimistic than their southern peers about their business’s ability to increase the volumes and prices of its products and services, they are equally optimistic about its ability to grow revenues.

In total, 78% of both northern and southern finance directors expect their company’s revenues to grow over the next 12 months. What’s more, northern finance directors do not necessarily anticipate that their company’s revenues will grow by a much lower rate compared with the businesses of southern finance directors. In fact, northern finance directors are more likely than their southern peers to forecast a revenue increase of between 41% and 100%.

These findings indicate a gap in expectations between those finance directors who are expecting increased revenue, and those who are expecting their company to raise the volume and prices of its goods and services. The existence of this gap could mean that some finance directors either have unrealistic expectations of revenue growth or lack a clear plan for how they will meet their revenue forecast over the next 12 months. There are exceptions to these generalisations that are important, but it is clear that regional differences exist in expected revenue growth through both volume and price.

What percentage change in forecast revenue, if any, do you expect over the next 12 months compared to the prior period? (North-South divide)

Mixed views on the National Minimum Wage

In April 2024, the NMW increased to £11.44 per hour, a rise of nearly 10% on the previous year. Further increases are also expected as part of the Government’s New Deal for Working People, which aims to ensure that the NMW is a wage that people can genuinely live on.

A higher NMW is potentially beneficial to businesses since it puts more money in consumers’ pockets to spend on goods and services and, if the underlying product or service has pricing power that at least matches the rise in NMW, then ultimately businesses can increase profits. This explains why half (50%) of finance directors surveyed for the research believe that an increase in the NMW will benefit their company finances.

Nevertheless, the research highlights some regional variations in terms of the extent to which finance directors believe that changes to the NMW will impact their business, either positively or negatively.

In the South East, for example, there is a 32% swing towards the NMW having a negative impact on company finances. This is calculated by subtracting the percentage of respondents who answered ‘negative impact’ from the percentage of respondents who chose ‘benefit’. In contrast, the East of England records a 66% positive swing.

Regions who have a bigger swing than the overall data for the question ‘How much do you expect on-going changes to the National Minimum Wage to affect your company finances, either positively or negatively?’

Resilience varies by location

Commenting on the research findings, Chand Chudasama, Partner in the Strategic Corporate Finance Team at Price Bailey, said: “As UK businesses continue to navigate difficult trading conditions and an evolving policy environment, the evidence suggests that their resilience levels are likely to vary according to where they are based.

“The research highlights that regional differences are creating differences in confidence amongst finance directors. In struggling regions, those finance directors are far more likely to be impacted by a fall in sales volumes than their peers. Those less confident businesses are also less able to pass on increased costs to their customers in the form of higher prices.

“Additionally, the impact of the National Minimum Wage on company finances varies by region, although there is no clear divide between the North and South. The reasons for these regional-based differences are likely to be nuanced and specific and may therefore warrant further consideration by local businesses, economic institutes, and trade bodies.”

Chudasama added: “In the upcoming Budget, the Government should be wary about making any policy changes that further widen the gap between northern and southern businesses. Instead, it should look for opportunities to address regional inequalities so that businesses in the North and South are both equally empowered to contribute to the UK’s future economic growth.”

About the research

The research was based on a survey of 750 finance directors working for UK businesses with turnover in the range of £10 million to £100 million. It was conducted by Censuswide, on behalf of Price Bailey, in August and September 2024. The North is defined as the North East, the North West, Yorkshire and the Humber, the East and West Midlands. The South is defined as the East of England, Greater London, the South East, and the South West.