Q3: Business confidence in the East of England improves but remains in negative territory.
- Business confidence in the East of England rose to -4.0 from -11.6 in Q2, its highest score in a year, but remained below the UK average.
- Domestic sales growth weakened and expectations fell below national levels, while exports accelerated strongly, but firms have tempered their outlook.
- Geopolitical risk remained the main growing challenge, with labour costs significant, while regulatory and late payment concerns rose.
- Employment and salary growth slowed, though businesses expect hiring to strengthen while pay growth moderates further.
- Input price inflation edged up but businesses expect cost pressures to ease, while profits growth lifted.
- Companies stepped up capital investment growth and plan above-average growth in both capital investment and R&D over the coming year.
Business confidence in East of England
Business sentiment in the East of England improved in Q3 2026, with the Business Confidence Index rising from -11.6 in Q2 2026 to -4.0, its highest score since Q3 2025. However, the score remained below the UK average (-0.5) and has now been below the regional historical average (+3.5) for eight successive quarters.
The improvement likely reflects the resilience of the UK economy to the US-Iran conflict and the disruption in the Strait of Hormuz, with fewer businesses in the region citing geopolitical risk, energy costs and labour costs as growing challenges than in the previous quarter. Stronger exports and profits growth likely supported sentiment, and the recovery in confidence among Business Services companies across the UK, a locally important sector, probably helped too. However, slowing domestic sales growth and weaker expectations for the year ahead kept confidence subdued, while renewed US-Iran hostilities towards the end of the survey period, which drove up oil and gas prices, weighed on sentiment nationally.
Domestic sales and exports growth
Annual domestic sales growth in the East of England slowed to 2.2% in Q3 2026, the weakest rate since Q3 2025, lagging both the UK average (3.6%) and the region's historical norm (3.1%). Companies have also become more cautious about the year ahead, lowering their projections for domestic sales growth to 3.3%, which is below the 4.3% rise forecast nationally.
In contrast, annual exports growth strengthened to 4.1% in Q3 2026, its fastest rate since Q2 2024 and one of the strongest in the UK, outpacing both the regional historical norm (3.0%) and the national average (2.8%). Improved exports performance reported by Manufacturing & Engineering companies likely contributed to the uplift. However, volatility in the global trading environment due to the continued war in the Middle East has led businesses to ease their export growth outlook to 3.4% over the next 12 months, markedly below the rate expected UK-wide (4.1%).
Business challenges
Anecdotal evidence from ICAEW members in the East of England suggests businesses viewed the war in Iran as the main economic risk, with concerns that higher energy costs could drive price increases across their supply chains, heightening uncertainty and caution. These worries are reflected in the BCM survey responses in Q3 2026, with geopolitical risk remaining the main growing challenge for businesses and cited by 59% of companies, close to the national average (58%). Energy costs were also prominent concerns and were reported by 43% of businesses. This was down from last quarter and slightly below the UK average (45%), though it is likely that the survey results do not fully capture the rise in wholesale gas and crude oil prices in September.
Labour costs were reported as a rising challenge by 49% of businesses, down from last quarter and below the national average (53%). Concern about the tax burden also eased to 35%, below the UK average (41%) though still well above the historical norm (19%). In contrast, 48% of businesses noted regulatory challenges, which is above the UK average (46%) and the regional average (39%). Customer demand issues were stable at 39% of businesses, in line with the historical norm (39%) and above the UK (36%).
Unlike most parts of the UK, late payment concerns also picked up, with 23% of businesses citing the issue as a growing challenge. This was among the highest proportions in the UK and edged above both the national average (19%) and the regional norm (21%).
Labour market
Annual employment growth slowed to 0.5% in the East of England in Q3 2026, its weakest rate since Q2 2021, below both the UK average (0.7%) and the regional norm (1.3%). This mirrors the national picture, where increased global uncertainty and elevated labour costs led many employers to delay increasing their headcount. Businesses plan to increase hiring over the next 12 months, projecting jobs growth of 1.6%, which is broadly in line with the 1.5% rise forecast nationally.
Annual salary growth eased to 3.0% in Q3 2026 but remained above the UK average (2.8%). Companies expect pay growth to moderate further to 2.5% over the next 12 months, slightly below the 2.6% rise forecast nationally but still above the historical norm (2.3%).
Input and selling prices, and profits growth
Annual input price inflation edged up to 4.0% in the East of England in Q3 2026, the highest rate since Q4 2025 and running slightly ahead of the UK average (3.9%). However, businesses expect cost pressures to ease markedly over the coming year, predicting input price inflation of 2.5%, below both the 2.9% rise forecast nationally and the historical norm (2.8%). Given the renewed rise in oil and gas prices in September, this projection may be subject to revision as businesses factor in rising costs to their outlook.
Selling price inflation eased, with businesses raising their prices by 2.4% in the year to Q3 2026, above both the UK average (2.2%) and the regional norm (1.4%). Companies plan to moderate price rises further to 2.0% over the next 12 months, slightly below the 2.1% expected nationally.
Annual profits growth picked up to 4.0% in Q3 2026, its highest since Q2 2025, outperforming the UK (3.3%) and the regional historical average (3.0%), likely supported by strong exports growth and above-average selling price rises. Companies predict profits growth will improve further to 4.4% over the next 12 months, broadly comparable to the UK-wide expectation (4.5%).
Capital investment and R&D
Businesses in the East of England stepped up annual capital investment growth to 2.4% in Q3 2026, close to the national average and above the regional norm (2.0%). Having planned to scale back investment sharply last quarter, companies have become more positive and now intend to increase capital investment by 2.1% over the next 12 months, marginally above the 2.0% rise expected nationally. The shift in plans perhaps reflects the findings from a recent national ICAEW pulse survey that firms have been seeking productivity and efficiency improvements to mitigate rising costs.
Annual R&D growth was broadly steady at 2.4% in Q3 2026, and also closely matched the UK rate (2.3%). Companies intend to lift R&D growth to 2.5% over the coming year, their strongest expectation since Q1 2024 and ahead of the UK projection (1.9%) and historical norm (2.1%).
UK results
The UK Business Confidence Index rebounded to -0.5, from -14.6 in Q2, but remained negative for a seventh consecutive quarter. Current sales and profits proved resilient, but firms downgraded their expectations for both over the next 12 months. Geopolitical risk remained the leading challenge, while elevated input and labour costs continued to put pressure on margins. Energy costs, regulations and the tax burden remain significant challenges. The rebound was broad but uneven: confidence rose in every sector, IT & Communications was the most positive, while Property and Construction remained deeply negative.
The latest quarterly findings are based on the period 13 July to 21 September 2026.