Q1: Some improvement but business confidence remains deeply negative.
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 of England Business Confidence Index improved to -8.8 but remains significantly below the UK average (-1.1).
- Despite improved domestic and exports sales growth, profits growth remained below the historical norm.
- Labour costs are the most widespread business challenge amid rising salary growth, while employment growth is set to slow.
- Companies expected input prices inflation to continue to ease but the Iran war poses significant challenges to the predicted outlook.
- Business do not intend to maintain stronger investment and R&D growth next year.
Business confidence in East of England
Despite an uptick in sentiment in Q1 2026, the Business Confidence Index for the East of England remains in deep negative territory at -8.8. This is significantly lower than both the UK average (-1.1) and the regional norm (+3.8) and is below all regions apart from the East Midlands (-11.4).
The relative pessimism in the region appears to be linked to business concerns about labour costs and the tax burden, alongside weak profits growth, with the more downbeat views of the locally-important Transport & Storage, Construction and Retail & Wholesale sectors weighing on overall confidence.
Domestic sales and exports growth
Domestic sales improved for the second consecutive quarter in Q1 2026, with annual growth rising to 3.6% which is above the East of England norm (3.1%) and close to the national average (3.5%). Businesses also reported that exports sales rose above the historical average (3.0%), reaching 3.3% in the year to Q1 2026 and matching the UK rate. Companies expected both domestic and exports sales growth to improve significantly over the coming 12 months, predicting growth of 4.5% and 4.8% respectively. However, these forecasts were largely formed ahead of the outbreak of the Iran war at the end of February which has likely dampened expectations for the year ahead.
Business challenges
Concern over the tax burden as a growing challenge dropped sharply in Q1 2026 and was reported by just over half (51%) of businesses, similar to the UK-wide proportion (53%). The issue was still over twice the historical average (19%) but has been replaced by labour costs (62%) as the most widespread challenge for businesses in the East of England. This was the first time companies were asked about labour costs as a growing challenge, and businesses in the East of England were more likely than average (56%) to cite the issue.
Regulatory requirements was reported by 44% of businesses, with the challenge remaining above the historical norm (39%) and of particular concern to the Construction, Property and Energy, Water & Mining sectors. With sales improving, reports about customer demand eased to 38%, close to the historical average (39%) and national average (36%). However, businesses in the region were most likely to report energy costs as a growing challenge, with the issue cited by 42% of businesses, above any other region and the national average (35%).
Labour market
With labour costs the most widely cited issue in the East of England, companies reported an uptick in wage inflation in Q1 2026 to 3.1%. However, they anticipate that salary growth will ease to 2.3% in the coming year, the lowest projection across the UK and matching the regional historical norm.
Salary expectations appear to be linked to planned employment growth, with businesses in the East of England intending to slow jobs growth to just 0.9% next year, down from 1.0% reported in the year to Q1 2026, and notably weaker than the historical norm (1.3%).
Reports of skills-related challenges dipped further below their respective historical averages in the quarter. However, while the issue of staff turnover also eased somewhat, it was reported by 22% of businesses, above the region’s historical average (19%) and continues to be more prevalent than in most other regions.
Input and selling prices, and profits growth
After a spike reported last quarter, annual input price inflation relented in Q1 2026, easing to 3.5% and close to the UK average (3.6%). Companies predicted that input price inflation would edge down to 3.0% next year, matching the average UK projection. However, these expectations were largely set ahead of the Iran war and the risks to the inflationary outlook have since increased significantly.
While businesses in the East of England reported that annual selling price inflation eased again to just 1.8% in Q1 2026, they predicted a rise to 2.0% in the year ahead. This was among the lowest projections across the UK with the outlook increasingly uncertain because of oil and gas price rises linked to the Middle East conflict.
Profits growth slowed to just 2.3% in the year to Q1 2026, weaker than the UK average (3.1%) and the historical norm (3.0%). However, companies predicted that the growth rate would double to 4.6% next year as sales growth expanded, a view that was slightly lower than the average UK projection (5.2%), although risks to the profits outlook have risen across all regions.
Investment
Annual capital investment growth in the East of England rose sharply to 2.4% in Q1 2026, above the historical average (2.0%) and close to the UK average (2.5%). Businesses plan to slow the rate of growth over the coming 12 months to just 1.3% compared to the UK-wide projection of 1.9%.
Companies in the region also lifted their R&D budget growth to 1.8% in the year to Q1 2026 but remained short of the national average (2.1%). They plan to slow expansion to just 1.5% next year, further from the historical norm (2.1%) but matching the national average projection.