ICAEW Business Confidence Monitor (BCM): East Midlands

The latest national Business Confidence Monitor (BCM) shows that business sentiment was on course to move into positive territory in Q1 2026, but the outbreak of the Iran war had a dramatic impact in the final weeks of the survey period, with confidence deteriorating sharply. While businesses reported improved annual domestic sales and exports growth and easing input price inflation compared with Q4 2025, the war introduced significant downside risks to the outlook for the coming year.

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 12 January to 16 March 2026.

• The East Midlands business confidence score remained at -11.4 in Q1 2026, making companies in the region the most pessimistic in the UK.
• Despite this, domestic sales growth was strong over the past year but businesses expect growth to moderate and exports growth has been weak.
• Labour costs are the main growing challenge for businesses, while concern about regulations and tax remain prevalent.
• Companies plan to scale back jobs growth next year after annual employment growth softened slightly from last quarter.
• Input price inflation remains sticky and profits growth is expected to slow sharply having outpaced all other regions in the year to Q1 2026.
• Robust capital investment and R&D budget growth are both set to slow.

Business confidence in East midlands

The Business Confidence Index in the East Midlands stalled in Q1 2026, remaining unchanged from the previous quarter at -11.4. Increased positivity in other regions meant that the region is now the most pessimistic in the UK, with a significant gap to the national average (-1.1) and the region’s historical norm (+2.9). Subdued exports growth and sticky inflation over the past year appears to be weighing on sentiment, while businesses in the region have relatively weaker expectations for the year ahead for key indicators including domestic sales and profits. The outbreak of the Iran War also caused increased uncertainty for businesses in the final weeks of the survey.

Domestic sales and exports growth

Annual domestic sales growth increased for the second consecutive quarter in Q1 2026, reaching 5.5%, the sharpest increase since Q1 2023. However, companies expect domestic sales growth to moderate over the coming year, dropping below the national average projection (5.4%), to 5.0%. This slowdown is likely linked to pessimistic outlooks of the locally important Retail & Wholesale and Transport & Storage sectors.

Businesses in the East Midlands again reported disappointing exports growth at just 1.5% in the year to Q1 2026, lagging both the region’s historical norm (2.6%) and the UK-wide increase (3.3%). Elevated uncertainty in the global trading environment were likely contributors to this sluggish performance. Companies predict that exports growth will improve over the year ahead, rising to 4.2% and broadly in line with the national average projection (4.1%). However, the Middle East conflict has greatly increased the uncertainty around exports growth, particularly if shipping is disrupted longer term.

Business challenges

The proportion of companies in the East Midlands citing the tax burden as a growing issue eased in Q1 2026 and was reported by just less than half (46%) of businesses, below the UK average (53%). However, the issue is still a prominent concern at more than double the historical norm (19%). Instead, the concern has been overtaken by labour costs as the most prevalent challenge. This was the first time businesses were asked about labour costs as a rising challenge and, while the issue was the most pressing concern, it was less widespread in the East Midlands (48%) than all other regions, with citations below the national average (56%).

Reports of regulatory requirements as a rising challenge declined in Q1 2026 but, at 47%, it equalled the national average and was still above the region’s historical norm (40%). Meanwhile, companies in the East Midlands were among the most likely to report energy costs as a growing concern, with the issue reported by 39% of businesses, higher than the national average (35%). This larger level of concern suggests that businesses in the region may be more exposed to the increased volatility in oil and gas prices following the closure of the Strait of Hormuz on 2 March.

Labour market

Businesses in the East Midlands reported that employment growth eased slightly in Q1 2026, though headcount still increased by 1.8% y/y and is above the regional historical norm (1.0%). However, companies in the region plan to slow employment growth significantly over the coming year to just 0.4%, the weakest prediction of all UK regions and less than a third of the projected average UK growth rate (1.3%).

Annual salary inflation in the East Midlands edged down slightly to 3.1% in Q1 2026 but was above the increase recorded across the UK (2.9%) and remained higher than the regional historical norm (2.2%). Companies anticipate that salary inflation will grow at a similar trajectory in the year ahead, with a projected expansion of 3.2%, above the UK expectation (2.8%) and only below the rate predicted in Scotland (4.0%).

With weaker labour demand in the regions, issues around skills demand were less prevalent and only 9% of businesses cited the availability of both management and non-management skills in the region as a rising concern, significantly below both their historical norms (14% and 20% respectively). Issues with staff turnover also subsided, reported by just 14% of companies, the lowest proportion since Q3 2020 and significantly below the 19% historical norm.

Input and selling prices, and profits growth

Annual input price inflation slowed for the second consecutive month in Q1 2026, easing to 3.9% but it was significantly ahead of the UK average (3.6%) and only behind the increase recorded in the South West (4.0%). Businesses expect that input price growth will ease closer to the historical norm (2.8%), with a projected increase of 3.0% over the next 12 months, matching the UK forecast. However, the increased volatility in oil and gas prices since the outbreak of the Iran war represents a major risk to these predictions.

Businesses slowed the rate at which they increased their selling prices to 2.0% in the year to Q1 2026, below the national average (2.3%). Companies in the East Midlands plan to uplift their prices at a slightly faster pace next year (2.4%), widening the gap to the historical norm (1.6%) and marginally exceeding the national average projection (2.3%).

While businesses in the region reported a sharp uplift in profits growth in the year to Q1 2026, they expect growth to slow. Having recorded the largest increase of any UK region, at 5.9%, companies anticipate profits growth to slow to 4.2% over the coming year, below the 5.2% increase projected for the UK but above the historical norm (2.7%).

Investment

The further increase in capital investment reported in the region in Q1 2026, with annual growth increasing to 4.4%, is not expected to be sustained over the coming year. East Midlands businesses intend to slow investment growth to just 1.7% over the coming year, weaker than the national average projection (1.9%) and the historical average (2.0%).

R&D budgets followed a similar trend in the 12 months to Q1 2026, with a 2.8% increase that outperformed all other UK regions. Again, however, companies intend to reduce expenditure growth to 1.8%, though this is still among the sharpest projected increases in the UK, outpacing the national average projection of 1.4%.