North West firms have told the Bank of England they remain cautious over consumer spending and costs 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 across the region, as well as meeting politicians and community groups. Their reports are fed in to the Bank's Monetary Policy Committee, which decides on interest rates. Now, for the first time, the Bank is sharing its agents' analysis publicly with a series of Regional Insights Reports analysing English regions, including the North West.
Infrastructure, energy transition and defence support growth
The Bank's North West report says that for the six months to September, the North West's economy was being supported by investment in infrastructure, energy transition and defence, backed 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 to investment decisions.
Ken Clark, Agent for the North West, said: "It's been a strange year for the economy as a whole. Towards the start of the year, a lot of businesses were talking about green shoots and a more positive 2026 following 2025."
"And perhaps that stalled a little bit as events in the Middle East took over everyone's thinking in late February, but nonetheless there's still been quite a bit of resilience in some of those sectors as people have got used to the ongoing sporadic nature of the conflict. So some of that confidence has come back in some of those sectors."
Hiring caution and technology investment
North West businesses, Mr Clark said, remained cautious over hiring. He said: "When we speak to employers, what they tell us is about the impact of higher labour costs, and of some of those things that have changed in recent years. That's partly to do with things like National Living Wage or National Insurance Contributions, but in other cases not to do with those… not government-related, but market-related."
"A few years ago people were talking about a war for talent and how salaries were going up, for example, in professional and business services. I think that's created an environment in which businesses are finding it quite costly to hire people. So that makes them more cautious."
With higher labour costs, businesses are also looking to technology, including AI tools and automation. Mr Clark said: "We're certainly seeing firms increasingly exploring possibilities around productivity and efficiency enhancements which might enable them to increase output without increasing headcount to the same extent that they might have done in the past."
Mixed construction and resilient services
Mr Clark said the professional and business services sector in the North West was proving resilient. He said: "That is somewhere where, particularly in the cities and perhaps particularly in Manchester, we do see a lot of employment growth and quite a bit of positivity."
There's a mixed picture in the construction market, with firms working on Government-backed and infrastructure projects feeling more confident than residential developers. Mr Clark said: "In residential housebuilding, there's certainly – over the last 6 to 12 months, perhaps even longer – considerably less confidence, driven perhaps by affordability concerns on the part of households."
Another strong sector in the region is defence and aerospace manufacturing. But Mr Clark added: "Manufacturing is interesting because it's a bit more mixed and there are other parts of it which are finding it harder, partly because of demand. So if they're supplying into consumer-facing sectors, then that's perhaps a little bit less positive."
"Even if they're into more business-to-business type manufacturing, I think they're again seeing customers as being a little bit cautious and customers unwilling to commit to longer-term contracts. It's a little bit edgy for them."
Consumer caution and Citizens' Panels
Consumer caution is a theme of this half-year's surveys. Mr Clark said: "An ongoing concern for a lot of our contacts is that consumers are cautious. I think one of the stories that we hear is that consumers are pressed from a number of directions and have tended to be saving more."
"One of the stories we hear is that consumers are seeking value… and that might mean in terms of goods that they're trading down and not buying the slightly more expensive brands that they would have been buying in the past, but trading down to more value brands."
The Bank also conducts Citizens' Panels, where the bank invites dozens of members of the public to talk about anything from the health of the economy to new-look banknotes. The cost-of-living crisis is a recurring theme of those meetings, which are attended by some policymakers while anonymised reports are also shared with the rest of the MPC.
Mr Clark said: "That's a really valuable thing. It keeps us very grounded, it keeps the policymakers grounded, as they're actually hearing about people's day-to-day concerns." He added: "As part of an organization which is not London-centric, we want to show that we're actually out there listening to what businesses are saying – and this is one way of reflecting a bit on that."
