Companies in the energy transition and defense manufacturing performed well despite a more mixed picture in construction, agents said
North West firms have told the Bank of England they are remaining cautious about spending and consumer spending even as key sectors including professional services remain resilient, new analysis shows.
The bank has a network of agents across the UK who regularly speak to businesses in the region, as well as meet politicians and community groups. The report is sent to the Bank’s Monetary Policy Committee, which sets interest rates.
Now, for the first time, the Bank is sharing its agents’ analysis publicly with a series of Regional Insights Reports analyzing the UK region, including the North West.
The North West Bank report states that for the six months to September, the North West economy was supported by investment in infrastructure, energy transition and defense, supported by a strong performance in professional and digital services.
But the ongoing cost-of-living crisis means consumer-facing sectors such as retail and hospitality, as well as construction and manufacturing, are seeing weak demand, rising costs and delays in investment decisions.
Ken Clark, Agent for the North West, said: “It has been a strange year for the economy as a whole. At the beginning of the year, many businesses are talking about green shoots and 2026 is more positive than 2025.
“And maybe it stopped a little bit because the events in the Middle East took everyone’s mind at the end of February, but there is still resilience in some of these sectors because people are used to the ongoing conflict. So some of that confidence has come back in some of these sectors.”
North West businesses, Mr Clark said, remain cautious about hiring.
He said: “When we talk to employers, what they tell us is about the impact of higher labor costs, and some things that have changed in recent years. It has to do with things like the National Living Wage or National Insurance Contributions, but in other cases it has nothing to do with that…
“A few years ago, people were talking about the fight for talent and how salaries are rising, for example, in professional services and business. I think that creates an environment where businesses find it quite expensive to hire people. So be more careful.”
With higher labor costs, businesses are also looking to technology, including AI and automation tools. Mr. Clark said: “We certainly see more and more companies exploring the possibilities of productivity and efficiency improvements that can increase output without increasing the number of employees as they have done before.”
Mr Clark said the professional services and business sectors in the North West were proving resilient. He said: “It’s everywhere, especially in the cities and maybe in Manchester, we’re seeing a lot of employment and it’s quite positive.”
There is a mixed picture in the construction market, with companies working on Government-backed infrastructure projects and more confident than housing developers.
Mr Clark said: “In housing, there has always been – over the last 6 to 12 months, maybe longer – a lack of confidence, perhaps driven by concerns about household affordability.”
Another strong sector in the region is defense and aerospace manufacturing. But Mr Clark added: “Manufacturing is interesting because it’s a bit mixed and there are other parts that are more difficult, partly because of demand. So if they supply it to the consumer-facing sector, then it might be a bit less positive.”
The Bank of England building in London(Image: PA)
“Even if they go to more business-to-business manufacturing type, I think they again see customers as a little bit cautious and customers are not willing to commit to long-term contracts. It’s a little bit edgy for them.”
Consumer caution is the theme of this half-yearly survey. Mr Clark said: “The one constant concern for many of our contacts is that consumers are being cautious. I think one of the stories we’re hearing is that consumers are being squeezed from a number of directions and tend to save more.
“One of the stories we’re hearing is that consumers are looking for value … and maybe that means in terms of things that are on sale and not buying the slightly more expensive brands that they would have bought in the past, but trading down to more expensive brands.”
The bank also hosts a Citizens’ Panel, where the bank invites dozens of members of the public to talk about anything from the health of the economy to the new look of paper money. The cost of living crisis was a recurring theme of the meetings, which were attended by several policymakers while anonymous reports were also shared with other MPCs.
Mr. Clark said: “It’s a valuable thing. It keeps us very grounded, it’s always grounded policymakers, they’re really hearing about people’s concerns every day.”
He added: “As part of an organization that is not London-centric, we want to show that we are out there listening to what businesses have to say – and this is one way to illustrate that.”