Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) – one of the largest and most comprehensive quarterly surveys of UK business activity – put confidence at 2.9 on the index for Q3 2023, down from 6.1 in Q2 and below the pre-pandemic average. 
Domestic sales growth slowed to its lowest level since Q3 2021, reflecting weakening confidence, the survey found. This was partly driven by slowing customer demand with 37% of businesses citing this as a growing challenge, the highest since Q1 2021. 
Concerns over bank charges may have also dragged down overall confidence with the proportion of firms reporting this as an increasing problem at a record high as tighter financial conditions weigh on the economy. 
Confidence was weakest in the construction sector, plummeting sharply into negative territory (-30.5). This likely reflected the sector’s exposure to rising interest rates, high input costs and weak customer demand. Heavy rainfall caused delays to planned project work in the sector, which may have dampened sentiment further, the report found.
By contrast, confidence was highest among transport and storage companies due to a strong holiday season boosting demand for leisure travel, ICAEW said. 
The government must use next month’s Autumn Statement to set out a clear plan for a resilient UK economy that provides stability for businesses, to enable confidence to grow, the Institute said.
Suren Thiru, ICAEW Economics Director, said:
“The economy showed increasing signs of distress in the third quarter as the squeeze from deteriorating customer demand and higher interest rates more than offset a boost from easing inflation.
“The construction sector endured a particularly atrocious quarter as a perfect storm of rising cost pressures, a slowing housing market and unseasonably poor weather obliterated sentiment and output.
“The forward-looking measures are disappointingly downbeat with weakening indicators of domestic activity, employment and investment intentions suggesting a difficult end of the year for the UK economy.”
Michael Izza, ICAEW Chief Executive, added:
“Business confidence unsurprisingly remains low given companies’ struggles with a myriad of financial challenges and weakening customer demand.
“A clear strategy is needed to increase the resilience of the UK economy, and we’d like to see this included in the Autumn Statement. Our members operating across every region and every sector want an economy underpinned by certainty, clarity, stability and the right long-term incentives to influence investment, employment and growth.”
Inflationary pressures ease further
Selling price inflation eased in the quarter, following record growth in Q2, and businesses expect it to drop to its lowest level since Q1 2022 over the next 12 months, as input cost inflation eases. Energy, water and mining are expected to cut their selling prices in the next year, while manufacturing and engineering are set to see big slowdowns in selling price inflation. 
While still high by historic standards, salary growth did slow for the first time since Q4 2020 as hiring activity declined, and was weakest in the property sector as confidence slowed amid a deteriorating housing market. By contrast, salary growth was strongest among manufacturing and engineering and energy, water and mining firms, and is expected to slow over the coming year across all sectors. 
Firms moderate investment plans
Capital investment growth continued to slow in Q3, reflecting the overall weakness in business sentiment and numerous financial challenges including the tax burden, bank charges, late payments and access to finance. Companies also continue to restrain their research and development spending. 
Companies plan to further moderate increases in capital investment over the next year, with financial challenges expected to continue contributing to this squeeze. 
Notes to editors:
CONTACT: ICAEW media office firstname.lastname@example.org or 07866 853841
ICAEW launched a new campaign titled ‘Resilience and Renewal’ in September which explores some of the most serious systemic challenges facing the UK economy and brings together government ministers, leading academics, economists and thought leaders to look at how to build a better, more resilient future economy and the vital role UK business and chartered accountants play.
***The full report is available on request***
The Business Confidence Monitor (BCM), which is one of the largest and most comprehensive quarterly surveys of UK business activity, began in 2004. 1,000 Chartered Accountants based in the UK responded to a telephone survey between 26 June and 22 September 2023. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions.
- The Business Confidence Index for Q3 2023 stood at 2.9, below the pre-pandemic (Q1 2004 to, and including, Q4 2019) average of 4.1.
- Annual domestic sales growth stood at 4.4% in Q3 2023.
- Bank charges were a growing challenge for 22% of businesses.
- The Business Confidence Index for the transport and storage sector stood at 18.3 in Q3 2023.
- BCM measure selling prices stood at 4.1% in the year to Q3 2023 and are expected to moderate to 2.4% in the year ahead. Energy, water and mining businesses expect selling prices to fall by 0.6% in the year ahead.
- BCM measure of input price inflation is expected to slow to 3.0% in the next 12 months.
- Average salary growth stood at 4.3% year-on-year in Q3 2023, and at 3.4% in the property sector.
- Average salary growth was strongest among manufacturing and engineering (5.2%) and energy, water and mining (5.6%) sectors, and will slow to 3.4% across all sectors in the year ahead.
- Annual capital investment spending stood at 2.3% in Q3 2023, while research and development spending at 1.7%.
- The tax burden (26%), late payments (21%), and access to capital (19%) were cited as growing challenges by businesses.
- Companies plan to further moderate their increase in capital investment spending in the year ahead, with growth averaging 1.4%, down from 2.3% in Q3 2023.
- Business Confidence Index methodology - The Business Confidence Index is calculated from the responses to the following:
“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”
A score was applied to each response as shown below, and an average score calculated:
|Much more confident||+100|
|Slightly more confident||+50|
|Slightly less confident||-50|
|Much less confident||-100|
Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.