Quarterly Economic Survey - Q3 2025
Summary
* The report uses data from the Quarterly Economic Survey carried out from 18/08/25 and 15/09/25 in the third quarter (Q3) of 2025.
Total respondents: 287
- Businesses classified as Manufacturers: 41.0%
- Businesses classified as Service sector businesses: 59.0%
Out of 287 businesses, 47.0% were active in international markets.
Business Size
- Micro Businesses: 38.0%
- Small Businesses: 34.0%
- Medium Businesses: 22.0%
- Large Businesses: 6.0%
Wider Economic Context
- Unemployment rate (May’25-Jul’25): Increased from 4.2% to 4.7% compared to the previous three-month period.
- Youth (16-17 years) unemployment: Increased from 28.4% to 37.3% over same time period.
- Job Vacancies (Jun’25-Aug’25): 728,000 showing a further fall in the number of vacancies by 10,000 from previous 3-month period. This was 38th consecutive decline in number of job vacancies compared to previous 3-month period. The vacancies decreased in half of the 18 industry sectors.
- Bank of England’s latest Monetary Policy report: Inflation has increased this year and progress in inflationary pressures has led to reduction in interest rates. Interest rates have been cut to 4.0%.
- Exchange rates (Sep’25): GBP stands at €1.15 – a decrease by €0.03 to Jun’25.
- International Trade (Q1 2025): Exports valuing £7.29 billion.
Region at a Glance
*Net Value = Increase - Decrease
🟢 Positive; 🔴 No change; 🟡 Negative
Overall business sentiment is predominantly negative, reflecting widespread declines in sales, orders, and workforce, despite some positive confidence indicators.
State of Economy Index
Compared to previous quarter, the current quarter saw steep fall in the state of economy index. The value for third quarter of 2025 is -12.
Results
UK Sales
The dominant sentiment of constancy slightly declined then stabilized, while increased indicators gained on decreased ones.
UK Orders
Business sentiment is predominantly stable, with fewer reporting decreases and more reporting increases over time.
Overseas Sales
Business opinion shows a declining trend in constancy, with a notable shift towards perceptions of decrease over time.
Overseas Orders
Business opinion increasingly reflects conditions remaining constant, indicating a growing perception of stability.
Past Employment
Business opinion largely remained constant, with the proportion of stable responses showing a slight overall decline.
Future Employment
Business sentiment largely anticipates constancy, with the expectation of decrease notably declining over the period.
Recruitment Attempted
The prevailing business opinion consistently leans negative, with "No" responses always outnumbering "Yes" responses across all quarters.
Recruitment Problems Faced
The dominant "Yes" response is decreasing, while "No" responses are increasing, indicating a shift towards a less positive business outlook.
Recruitment Difficulties
Businesses predominantly engage skilled and professional roles, showing a decreasing count towards unskilled and clerical positions.
Positions Filled
Businesses predominantly favor full-time and permanent employment, indicating a strong preference for stable workforce structures.
Cash Flow
Despite sentiment largely remaining constant, a slight increase in reported decreases indicates a subtle negative shift in business opinion.
Operating Capacity
Business sentiment indicates a weakening operational capacity, with a growing proportion of businesses reporting operations below full capacity.
Future Prices
Business opinion increasingly anticipates stability, with a growing majority expecting conditions to remain the same over time.
Price Rise Pressures
While most costs remain stable, businesses face increasing raw material expenses alongside slight decreases in labour and finance costs.
Investment in Machinery
The dominant business sentiment of maintaining outlooks slightly decreased, while upward revisions consistently increased, suggesting growing optimism.
Investment in Training
Business opinions largely remained stable, yet there's a growing trend of upward revisions in expectations.
Confidence Turnover
Business opinion reflects an increasingly positive outlook, with expectations for improvement rising and worsening declining over the period.
Confidence Profitability
Overall business sentiment shifted from predominantly negative to increasingly positive, with 'worsen' declining and 'improve' rising.
Business Concerns
Businesses are most concerned by inflation and corporate taxation, with decreasing impact from other economic indicators.
Commentary
Falling sales and orders as latest research reveals scale of challenges for East Midlands businesses
East Midlands businesses have seen a fall in orders and sales performance over the last quarter, in both UK and overseas trading. This contrasts with more encouraging sentiment looking forward, where confidence for the twelve months ahead has seen an uplift with firms anticipating increased profitability and turnover.
Inflation continues to be the greatest concern of businesses in the region, followed by corporate taxation.
While three out of ten firms are considering an increase to their prices, this number has fallen slightly across the last two quarters. That could suggest an easing of price pressure – despite rising inflation – or show as a lower figure because firms have already raised prices or reduced other outgoings to help cover higher costs earlier in the year.
With labour costs consistently cited as a key driver of pressure to raise prices across previous publications of the Quarterly Economic Survey, it is notable that there has been no drop in the number of businesses (seven out of ten) expecting their workforce to stay the same, although there was a very slight rise of firms expecting to decrease their workforce.
In terms of the decision to recruit new staff or not, this has also held relatively steady with only minor fluctuation over the last three quarters, where half the respondents in the survey said they had attempted to recruit.
Firms continue to struggle to find candidates suited to roles, with six out of ten businesses reporting difficulty, which suggests hiring challenges resulting from the skills gap persist. Although unchanged from the last quarter with a high number of businesses still experiencing difficulty, the figure is lower than Q1 2025 when it was seven out of ten.
While intention over hiring and retention of staff appears to show stability or slight signs of improvement, more businesses (up from seven out of ten to eight) are operating below their normal capacity.
The most significant sign of positivity may be in profitability and turnover expectations businesses reported for the next 12 months. There was a rise in firms (from three out of ten to four out of ten) anticipating improved profitability, while turnover expectation followed a similar uplift, with half of East Midlands businesses expecting increased turnover.
These positive projections could result from reductions firms have made to their cost base, for example by having already increased prices, or result from an expectation of a more stable trading environment, with more clarity, following the Autumn Budget.
University of Leicester School of Business Professor of Finance and FinTech Mohamed Shaban said:
The QES indicators for quarter three reflect a general state of uncertainty, anticipation, and cautiousness, primarily influenced by the global trade and political environment, as well as the new UK labor regulations.
The decline in domestic and overseas orders suggests that the adverse effects of the US-imposed tariffs on various countries will also impact demand in local markets.
Despite a slight improvement in investment in machinery, the drop in the labour force, and planning for a future labour force, signalling that the mechanism driving the reduction in workforce stems from businesses’ cautious approach to the cost implications of the new regulations.
The positive takeaway from the indicators is the business confidence in continuing to grow in terms of turnover and profitability.
In the next quarter, we expect to see a more consistent direction in the indicators. By then, the budget will be out, and we will have a solid and clear picture of what businesses envision reflecting in the budget. Nonetheless, international politics and trade tensions will continue to have a damaging impact on the economic performance in many parts of the world, including the UK.
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