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 4.2 on the index for Q4 2023, up from 2.9 in Q3, but below the pre-pandemic average of 7.2 from 2010-19. Customer demand issues, sales growth and high interest rates likely kept optimism subdued, despite easing inflationary pressures.
Domestic sales growth continued to slow, standing at 3.6% year-on-year in Q4 and moving closer to the historical average of 3%. Export growth fell more markedly, and at 2.1% now stands below the 3% historical norm. Both are also at their lowest point since Q3 2021. However, companies expect faster domestic and export sales growth in the next 12 months. [1]
Customer demand remained one of the most significant challenges facing businesses, the BCM found, with 35% citing it as a growing concern, reflecting the continued cost of living squeeze and the impact of high interest rates. Businesses in the construction and retail and wholesale sectors were most affected by customer demand issues, with increased borrowing costs restricting demand, ICAEW said. [2]
Meanwhile, around one in four companies said the tax burden was a rising source of difficulty, compared to the historic norm of 16%. [3]
In its submission to the Treasury ahead of the Budget, ICAEW said the government should build an economy underpinned by certainty, clarity, stability, and introduce the right long-term incentives to influence investment, employment and growth.
Suren Thiru, ICAEW Economics Director, said:
“These findings confirm that the economy struggled for momentum at the end of last year as weakened customer demand, an onerous tax burden and high interest rates drove a notable deterioration across key indicators of business activity.
“The forward-looking measures are more upbeat, with strengthening indicators of domestic and export activity suggesting that even if the UK did suffer a small technical recession at the end of last year, the return to growth would be pretty quick.
"The continued easing in businesses' pricing expectations provides reassurance that inflation will drop back at a decent pace this year, despite December’s unexpected increase.”
Michael Izza, ICAEW Chief Executive, added:
“Though business confidence has improved marginally this quarter, over the past year companies have struggled with weakened customer demand, slowing domestic sales and exports growth, as well as wider economic problems from high inflation and interest rates.
“As wider economic fragility persists, businesses and our members – who operate across every region and sector of the UK – need certainty and stability more than ever. Therefore, I urge the government to consider setting out a long-term vision for the UK economy that is resilient, obstacle-free and primed for growth.”
Investment, employment, profits growth weaken
The survey found that profits growth slowed to 2.1%, year-on-year in Q4, the lowest rate since Q3 2021 and below the historical average. As sales growth weakened, businesses were unable to pass the full rate of input cost and wage rises on to the customer, eroding profit margins, ICAEW said. However, businesses do expect profits growth to accelerate in the year ahead. [4]
Additionally, capital investment spending also fell significantly, and at 1.6% in the year to Q4 2023 was below historical standards and the lowest since Q2 2021. A combination of financial challenges, weakening demand and fragile business confidence are all likely to delay investment plans, ICAEW said. In fact, companies expect a similar rate of investment growth in the year ahead. [5]
Employment growth has more than halved since hitting a record high of 3.5% in Q3 2021, falling to 1.5% in Q4 2023, reflecting overall weakness in demand and economic uncertainty.
Inflation concerns fading
Meanwhile, a year-on-year slowdown in selling prices reflected both smaller increases in input costs and the challenging economic backdrop facing businesses, many of whom absorbed some price rises to support sales. The BCM findings also suggest that salary growth will slow in the year ahead. [6] [7]
Businesses also expect selling prices to grow at a slower rate in the year ahead, mirroring trends in input cost inflation. Sectorally, transport and storage businesses saw the biggest declines in selling price inflation, closely followed by the energy, water and mining sector. [8][9]
ENDS
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 17 October and 15 December 2023. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions.
- Businesses expect faster domestic (4.9%) and export (3.8%) sales growth in the next 12 months.
- 48% of construction businesses and 47% of retail and wholesale businesses cited customer demand as a growing challenge.
- 26% cited the tax burden as a growing challenge.
- Profits growth stood at 2.7% in Q3 2021, while the historical average is 3.1%. Profits growth is expected to grow by 4.6% in the coming year.
- Capital investment spending growth was 0.6% in Q2 2021, while the historical average is 2%. Capital investment spending is expected to grow by 1.5% in the coming year.
- BCM measure of selling prices stood at 3.3% year-on-year in Q4 2023.
- Average total salaries will slow to 3.4% in the year ahead.
- BCM measure of selling prices is expected to rise by 2.6% in the year ahead.
- BCM measure of selling prices stood at 3% in the transport and storage sector and 2.3% in the energy, water and mining sector.
- 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.
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