The latest national Business Confidence Monitor (BCM) for Q4 2023 shows a slight shift in sentiment within the quarter. However, the quarter-on-quarter improvement in sentiment is marginal, remaining broadly steady at a similar level over the last few quarters. Overall confidence continues to fall short of the pre-pandemic average.
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 17 October to 15 December 2023.
- Sentiment in the East of England improved somewhat in Q4 2023, with the Business Confidence Index emerging from negative territory, though confidence is still likely to be fragile.
- Domestic sales growth continues to ease in the East of England and is slower than elsewhere in the UK, though companies are more optimistic about prospects. Export performance has been more favourable, but it too has eased, and businesses expect improvements in the next 12 months.
- Input price inflation and salary growth eased again, mirroring trends seen in recent quarters. Companies anticipate input costs to rise more slowly in the next 12 months, while salaries are expected to grow at around the current rate, well ahead of historical averages.
- Annual employment growth in the East of England has been largely stable over recent quarters but businesses in the region have the joint-highest expectations for employment growth in year ahead.
- Customer demand is the most widespread growing challenge. Financial concerns related to the tax burden, access to capital, bank charges and late payments remain considerable sources of difficulty.
- Growth in capital investment spending has been close to the historical average in recent quarters, but it is expected to moderate substantially in the year ahead. R&D budgets are rising and are expected to grow slightly faster over the next 12 months.
Business confidence in the East of England
Sentiment in the East of England improved somewhat, with the Business Confidence Index rising up to +7.3 from -2.8 in the previous quarter. Easing inflationary pressures and fewer challenges within the labour market have likely bolstered business confidence, but it is likely to be fragile as domestic sales and profit growth slowed.
Domestic sales and exports growth
Domestic sales growth in the East of England eased markedly, a trend maintained over recent quarters. At 1.4% year-on-year in Q4 2023, growth is slower in the region than elsewhere in the UK. Companies are more optimistic about the outlook and expect a jump in the rate, to 4.4%, over the next 12 months. While this exceeds the average achieved in the region, it lags the expected rate for the UK.
Export performance in the East of England was more favourable and is up by 2.5% in Q4 2023 compared to a year ago. This rate of increase places the region among the top performers, despite having slowed since the previous quarter. Businesses in the East of England predict growth to pick up in the coming year, reaching 4.7%. Indeed, the projected rate for the region is the second-fastest across the UK, behind only Scotland.
Customer demand remains the most widespread growing challenge in the East of England, cited by 37% of businesses in Q4 2023, though this is somewhat below the historical norm for the region.
Financial challenges continue to be pressing concerns for businesses in the region, with the tax burden, late payments, bank charges and access to capital now more prevalent than in recent quarters. Around one in four companies cite the tax burden, making it among the most widespread source of difficulties, and a similar proportion of companies report late payments and access to capital. Indeed, access to capital is more prevalent in the East of England than elsewhere in the UK, bar London ‒ at 23%, it is at the highest level since Q1 2013. Elsewhere, bank charges remain prominent concerns in the region, cited by 16% of companies.
A few challenges are easing, which may help provide a boost to sentiment in the East of England. The proportion of companies reporting the availability of non-management skills as growing challenges softened in Q4 2023 and is lower than elsewhere in the UK. Staff turnover has also become less widely reported over recent quarters, though it remains a prominent issue, reported by almost one in five companies.
Annual employment growth in the East of England has been largely stable over recent quarters, though it has eased considerably in Q4 2023 compared to the previous quarter. At 1.8%, it is broadly in line with the national average (1.5%) and the region’s historical norm (1.3%). Businesses in the region plan to increase their labour force more quickly in the year ahead, by 2.6%. This expectation is joint-highest with Scotland.
Salary growth continues to slow, mirroring trends in recent quarters and, at 3.8% in the year to Q4 2023, it closely tracks the UK average but is notably ahead by historical standards for the East of England (2.2%). Companies in the region anticipate a similar rate of salary growth over the next 12 months and, at 3.9%, the East of England has one of the fastest expectations across the UK.
Input and selling prices, and profits growth
Cost pressures appear to have passed their peak in the East of England and have eased considerably in the latest quarter. At 4.9% in Q4 2023, annual input price inflation in the East of England is among the slowest in the UK. Businesses expect it to moderate further in the coming year to 3.0%, bringing it closer to the region’s historical norm.
With salaries and input costs remaining elevated, businesses continue to increase their selling prices at a rate slightly shy of the record high set in the previous quarter. Selling prices are now 3.9% higher in Q4 2023 than a year ago, and companies anticipate the rate of growth to cool further to 2.8% in the coming year. However, this remains high relative to historical standards. The net result is that profits growth has moderated to 1.2% in the year to Q4 2023, but companies forecast performance to improve in the next 12 months, to 4.8%.
Capital investment increased by 1.5% in the 12 months to Q4 2023, close to the historical average for the region (2.0%), though notably slower than the previous quarter. The outlook is less optimistic, with investment growth expected to soften considerably to 0.8% over the coming year, and is among the weakest expectations across the UK.
Companies in the East of England lifted R&D budgets by 1.5% year-on-year in Q4 2023. While this trails the historical norm for the region, businesses expect the rate to improve slightly to 1.9% in the coming year, slightly ahead of the rate predicted for the UK.