ICAEW Business Confidence Monitor (BCM): East Midlands

The latest national Business Confidence Monitor (BCM) shows that the Iran War significantly dented confidence as it dropped to a near four-year low and suffered its sixth successive negative quarterly score. Companies reported rising costs pressures, weaker expected sales and profits growth for the coming year, while late payment concerns hit a five-year high.

The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 13 April to 19 June 2026.

• Business confidence in the East Midlands fell to -22.3 from -11.4 in Q1, notably below the UK average (-14.6).
• Strong annual domestic sales growth is expected to slow sharply next year, but companies are optimistic exports growth will improve.
• Geopolitical tensions and the rise in energy costs and transport problems added to widespread concerns about labour costs, taxation, regulation and late payments.
• Businesses raised pay faster than the UK average, with only a slight moderation expected next year.
• Annual input price inflation rose and, with companies expecting cost pressures to linger next year, they intend to maintain above average selling price rises.
• Companies plan to scale back growth in capital investment R&D budgets over the next 12 months.

Business confidence in East midlands

Business sentiment in the East Midlands fell sharply in Q2 2026, with the Business Confidence Index dropping from -11.4 in Q1 2026 to -22.3, with sentiment again below the UK average (-14.6). While this was the lowest score recorded since Q4 2022, confidence has been subdued for an extended period, with the latest reading marking the seventh consecutive quarter the index has fallen below the East Midlands’ historical average (+2.6).

The marked drop in confidence in the region can largely be attributed to the Iran War and the closure of the Strait of Hormuz, which caused widespread disruption and drove a spike in oil and gas prices. With energy-intensive manufacturing and transport both significant sectors in the East Midlands, the rise in energy costs and transport problems were more widely reported here than in other regions and added to existing labour costs challenges. Lower domestic sales expectations coupled with increased cost pressures and the rise in uncertainty prompted businesses in the region to be more cautious about their investment plans for the coming year.

Domestic sales and exports growth

Businesses in the East Midlands reported stronger annual domestic sales growth in Q2 2026, at 6.0%, and outpacing the 3.6% rate recorded nationally. However, companies anticipate growth will slow sharply in the coming year to 3.3%, with the downbeat expectations of the Manufacturing & Engineering sector likely weighing on the outlook. Nationally, businesses predict domestic sales growth of 4.7% next year.

Companies are more optimistic about export sales, which expanded to 4.2% in Q2 2026, running ahead of the 3.1% rate recorded nationally and the historical norm (2.6%). They predict an uplift over the next 12 months to 4.9%, compared with the 4.0% rise forecast nationally. The Transport & Storage sector has strong growth expectations for the year ahead and likely supports the upbeat projection for the East Midlands.

Business challenges

Linked to the Middle East conflict, energy costs were reported as a rising challenge by 68% of businesses in the region — more widely cited than in any other UK region and above the national average (55%). Transport problems were reported by a quarter of businesses, second only to the East of England (26%). Perhaps linked to energy and transport problems, almost 1 in 5 companies raised the issue of government support, over twice the historical norm (8%). Geopolitical risk itself was noted as a rising challenge by 55% of companies in the region. Newly added to the survey this quarter (Q2 2026), this concern was less widely cited than the national average (65%).

Rising costs and uncertainty driven by global events only added to existing domestic concerns. Labour costs were cited as a rising challenge by 62% of businesses in the region. The proportion was up from last quarter and was above the national average (58%). While fading, the tax burden was cited as a rising challenge by 46% of businesses in the region, over twice the historical norm (20%), and regulatory concern (44%) remains above the historical norm (40%). Meanwhile, a quarter of businesses reported the challenge of late payments, with the incidence rising above the norm (22%).

Labour market

Annual employment growth cooled in the East Midlands to 1.0% in Q2 2026 and, while matching the historical norm, was below the 1.4% rate recorded nationally. Businesses foresee a pick-up over the next 12 months, projecting 1.8% growth, compared with the 1.5% rise forecast nationally.

With heightened concern about labour costs, businesses reported that they raised pay by 3.9% in the year to Q2 2026, faster than the UK average (3.1%). While companies expect wage growth to soften over the next 12 months to 2.8%, compared to 2.7% forecast nationally, they predict salary inflation will remain significantly above the regional norm (2.2%).

Input and selling prices, and profits growth

Annual input price inflation in the East Midlands rose to 4.4% in Q2 2026, running ahead of the 4.1% rate recorded nationally. Companies are somewhat cautious about the inflation prospects over the next 12 months. They predict input prices will rise by 4.2% next year, compared with the 3.8% rise forecast nationally, and anticipate growth will run significantly above the region's historical norm (2.8%).

There was evidence from BCM that businesses in the East Midlands have passed some of the rise in their input costs on to customers, raising their selling prices by 2.5% in the year to Q2 2026. This was a marked uplift from the previous quarter and significantly ahead of the region's historical norm (1.6%). Expecting cost pressures to linger, businesses plan to broadly maintain the pace of price rises at 2.4% in the coming year.

With robust domestic sales growth, businesses in the East Midlands reported annual profits growth at 5.4% in Q2 2026, above the 2.8% rate recorded nationally. However, with a more challenging domestic sales outlook and sticky inflation, companies predict growth will moderate over the next 12 months to 3.7%, compared with the 4.7% rise forecast nationally.

Capital investment and R&D

Amid growing uncertainty, businesses curbed their annual capital investment growth, but at 3.0% the rate reported in the region outpaces the UK average (2.7%). Businesses are becoming increasingly cautious in their investment plans and intend to scale back growth to just 0.9% next year, compared with the 1.8% rise forecast nationally.

Annual R&D budget growth in the East Midlands also eased to 1.6% in Q2 2026, lagging the 2.0% rate recorded nationally. Here also, companies plan to pare back growth to 0.8%, less than half the UK-wide forecast rate and the region's historical norm (both 1.8%).