The latest national Business Confidence Monitor (BCM) for Q2 2024 shows a sustained increase in confidence and is now at its highest level for two years, as businesses expect falling input price inflation to support further growth in demand and improved profits in the year ahead.
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 15 April to 22 June 2024.
- London’s Business Confidence Index improved for the fourth successive quarter to its highest point since Q1 2022, nudging ahead of the UK average.
- Rising sentiment was supported by improved domestic sales and exports growth, with companies predicting significantly better results for next year.
- Businesses also expect the growth in input prices to ease considerably, supporting demand.
- Profits growth improved again, moving ahead of the UK average, and companies anticipate profits will accelerate in the coming 12 months.
- Concerns about regulatory requirements continued their upward trend and remain the most widespread growing issue for London businesses. Competition in the marketplace and customer demand are also prevalent challenges.
- Investment is subdued in London, with businesses planning only a mild uplift in capital investment growth next year and to maintain below average R&D budget growth.
Business confidence in London
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Sentiment improved for the fourth successive quarter in London, with the Business Confidence Index at +17.1 and now ahead of the UK average (+16.7). The rise in confidence reflects the upgraded sentiment seen in some of London’s key industry sectors, including Banking, Finance & Insurance, Business Services and Transport & Storage, with the latter benefitting from the recovery of air travel through London’s airports. Confidence is at its highest level in over two years and significantly ahead of the historical average (+5.7).
Domestic sales and exports growth
After falling in recent quarters, domestic sales growth increased slightly to 3.1% in the latest survey, nudging ahead of the historical average (3.0%). Businesses expect conditions to improve further, anticipating domestic sales to grow by 5.8% in the next 12 months, among the highest projections across all UK regions.
Exports growth increased again this quarter, reaching 3.0% compared to 2.3% in Q1 2024. And although the growth rate remains below London’s historical average of 3.4%, businesses are optimistic about export performance in the year ahead, forecasting growth of 4.8% in the next 12 months, one of the highest anticipated growth rates among UK nations and regions.
Business challenges
Concern about regulatory requirements has been on an upward trend for London’s businesses and in Q2 2024 43% of companies reported the issue, the highest proportion since Q1 2020. This is likely explained by the presence of the highly regulated Banking, Finance & Insurance sector in the region but also the rise in regulatory concern witnessed across other typically less regulated sectors including Retail and IT & Communications, both significant to London’s economy.
Despite the improving sales picture, customer demand remains a prominent issue in the region but, at 34%, is currently below its historical average (38%) and is less of a concern than in most other regions. It is a similar story for competition in the marketplace, which is the third most prominent concern but is neither historically high, nor is it above the national average.
Labour market
Employment expanded by 1.8% in the 12 months to Q2 2024, remaining slightly above London’s historical average (1.6%), after a slight dip from the 2.0% growth recorded in Q1 2024. Businesses anticipate employment to continue growing at a similar rate (1.7%) over the coming year, just below the national average (1.9%).
London’s businesses are less likely to report labour market concerns than those in many other regions, with reports of skills issues and staff turnover either equaling or below the national average. However, wage pressures are dissipating rather slowly in London, with salaries rising by an average of 3.4% in the year to Q2 2024 and up from 2.9% recorded in the previous quarter. This is, however, below the national average of 3.7% and businesses expect the rate to ease to 3.1% in the coming year.
Input price, selling prices and profits growth
After falling for three consecutive quarters, the rate of input price inflation ticked-up in Q2 2024. Input prices in London rose by 4.8%, the second-fastest rate in the UK and significantly above the historical average (2.3%). However, businesses remain optimistic that input price inflation has peaked and expect the rate to fall to 2.7% in the coming 12 months, in line with the UK average.
Closely tracking the trend in input prices, businesses in London increased their selling prices at a faster rate in Q2 2024 than in the previous quarter, raising prices by 3.1% and up from 2.3% in Q1 2024. The recent uptick is expected to be a blip, with businesses projecting selling prices to rise by just 1.9% next year, the lowest expectation across all parts of the UK.
The survey results for Q2 2024 show profits growth for London’s businesses moving ahead of the national average for the first time since Q4 2022. Profits growth improved to 3.3% in London, outperforming the UK (3.1%) and edging close to the regional historical average (3.4%). Businesses anticipate a further and significant improvement in the year ahead, expecting profits growth to near double to reach 6.1%, ahead of the projection for the UK (5.5%) and close to the highest rate projected for the South East (6.2%).
Investment
Investment in London remains relatively subdued compared to the growth seen throughout 2021 and 2022. Capital investment growth was marginally higher in Q2 2024 than in the preceding quarter but, at 2.0%, remains below the historical average of 2.2%. This is also weaker than the growth recorded in most other regions but businesses expect a mild improvement, and plan to lift their capital investment spending by 2.4% in the coming 12 months.
Companies in London had been expanding their R&D budgets above the historical average since Q2 2022, but the rate of growth has been on a gentle downward trend since that point. The results from the latest survey show R&D budget growth falling to just 1.4% in Q2 2024, below the historical average of 1.7%. The outturn is lower than reported by most parts of the UK, in line with the West Midlands and above only the South West. Businesses expect to maintain growth at 1.4% next year, below the projection for the UK.
