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Business confidence hits two-year high but investment outlook remains weak

Author: ICAEW

Published: 24 Apr 2024

Business confidence in the UK has more than tripled as economic conditions improved, surpassing the pre-pandemic average for the first time in two years, a survey of business leaders published today (Wednesday 24 April) has found.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) – one of the largest and most comprehensive quarterly surveys of UK business activity – was at its highest level since Q1 2022. The quarterly index increased threefold to 14.4 in Q1 2024, up from 4.2 the previous quarter and double the pre-pandemic average of 7.2. [1]

The significant boost in confidence was likely underpinned by positive domestic sales and exports projections for the next 12 months, with lower inflation and expected falls in interest rates also factors, ICAEW said. [2]

For the first time in two years, confidence was in positive territory for all sectors of the economy, the survey found, with businesses in banking, finance and insurance the most optimistic. Sentiment among property and construction firms was also at its highest since Q4 2021. [3]

The Institute said the expectation that the Bank of England will begin to cut interest rates soon likely supported the confidence rises in these sectors, which are all relatively sensitive to rate changes.

However, despite the distinct boost in confidence, companies remain downbeat about their investment plans for the year ahead, ICAEW said. 

As set out in a series of recommendations made to all political parties ahead of the upcoming General Election, the Institute has called for a new vision for a prosperous and productive UK economy that supports businesses in the next parliament.

Suren Thiru, ICAEW Economics Director, said:

“These findings suggest that the economy comfortably exited recession in the first quarter as easing cost pressures and notable improvement across key indicators of business activity drove a robust rebound in overall sentiment.

“This improvement in confidence was encouragingly broad based with all sectors benefitting from lower inflation and expectations that interest rate cuts are on the horizon.

“However, the persistent weakness in investment intentions suggests that underlying economic conditions are still brittle, with weak productivity and persistent supply side constraints likely to continue limiting our economy’s ability to grow.”

Alan Vallance, ICAEW Chief Executive, added:

“It’s positive to see businesses reporting a rise in confidence following a gruelling year of depleted optimism, political uncertainty and fraught economic conditions. However, despite confidence rising above pre-pandemic levels for the first time in two years, momentum could be thwarted by businesses’ lack of ambition when it comes to investment.

“The UK economy is less resilient than it should be, leaving it vulnerable to shocks and less agile to embracing innovation. Building an economy with resilience at its core, an end to weak productivity and making the UK the best place to run a business, must be among the next government’s top priorities.”

Investment intentions remain weak

Despite improved confidence, businesses saw a modest rise in capital investment in Q1 2024, up to 2.3% from 1.6% in Q4 2023. However, companies plan to increase investment by just 1.6% over the next 12 months, below the historical average of 2%.

Capital investment spending growth was strongest in the manufacturing and engineering sector in Q1 2024 at 3.5%, followed closely by the highly regulated energy, water and mining sector at 3.3%, and companies in the sector anticipate a similar rate over the next 12 months ‒ partly driven by the regulatory pressures they face. [4]

Some sectors perturbed by regulatory challenges

Though confidence improved, the survey found that 41% of companies were increasingly troubled by regulatory requirements, the highest proportion for nearly four years. Respondents have typically cited general concerns over increased scrutiny and reporting requirements, and a perceived greater administrative burden, which relates to existing as well as new regulations.

Meanwhile, just 13% of businesses said bank charges – including interest rates – were a growing challenge in Q1. This was the lowest since Q2 2022 and down from 19% in the previous quarter.

Selling price inflation falls to two-year low

Selling price inflation dropped to its lowest level for two years and this is expected to continue over the next 12 months, the BCM found. Energy, water and mining was the only sector anticipating an uplift in selling price inflation in the year ahead. [5][6]

Businesses reported a further slowdown in salary growth to 3.7%, year-on-year, the lowest since Q2 2022. A further marginal slowdown in the rate of salary growth in the next 12 months is forecast. [7]

Most sectors saw salary growth either fall or stabilise in the quarter, though retail and wholesale businesses reported an uptick, consistent with the news that some major retailers recently raised minimum pay for staff as supermarkets battle to retain workers and ahead of the increase in the National Living Wage in April 2024. [8]


Notes to editors:

CONTACT: ICAEW media office tom.mackintosh@icaew.com or 07866 853841

***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 15 January and 18 March 2024. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions.

  1. The pre-pandemic average from 2010-19 is 7.2.
  2. Businesses expect an increase in domestic (5.2%) and export (4.7%) sales growth in the next 12 months.
  3. The index stood at 21 in banking, finance and insurance, 17.7 in property and 16.2 in construction.
  4. Energy, water and mining companies expect a 4% rise in capital investment in the year ahead, above the sector’s historic average of 2.9%.
  5. BCM measure of selling prices stood at 3.2% in the year to Q1 2024, and businesses expect this to drop to 3% in the next 12 months.
  6. BCM measure of selling prices stood at 1.4% in the year to Q1 2024, and businesses expect this to increase by 2.4% next year.
  7. Businesses anticipate a further marginal slowdown in the rate of salary growth in the next 12 months to 3.5%.
  8. Retail and wholesale businesses reported an uptick in salary growth of 3.4% in Q1 2024, up from 3.1% in Q4 2023.
  9. 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:

 Variable   Score 
 Much more confident  +100
 Slightly more confident  +50
 As confident     0
 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.

As one of the largest and most comprehensive quarterly surveys of UK business activity. BCM is closely watched by key policymakers, including HM Treasury, the Bank of England, British Business Bank and the Small Business Commissioner.