Q3: Business sentiment in the South East remains in deep negative territory in Q3 2025, below the UK average.
The latest national Business Confidence Monitor (BCM) shows that business sentiment deteriorated further into negative territory in Q3 2025. This increased pessimism is underpinned by elevated concern over the tax burden, as well as above-average inflation and weak domestic and export sales growth eroding businesses’ profit margins.
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 14 July to 24 September 2025.
- Sentiment in the South East improved slightly in Q3 2025, rising to -11.0, but remains below the national average and regional historical norm.
- Muted domestic sales and exports growth is expected to improve, but both are projected to lag the national average increases.
- The tax burden was the most commonly cited growing challenge, rising to another historical survey high and more prevalent in the South East than elsewhere.
- Employment levels remained unchanged in the year to Q3 2025 and the growth outlook for the year ahead in the region is subdued.
- Profits growth slowed significantly as input cost and wage inflation remained elevated, but businesses predict a significant improvement next year.
- Businesses in the South East decreased their capital investment in the year to Q3 2025 and the outlook for the year ahead is muted.
Business confidence in South East
After contracting in each of the three previous quarters in the South East, sentiment improved slightly to -11.0 in Q3 2025. Business confidence in the region remains lower than the national average (-7.3) and significantly below the region’s historical average (+5.0).
The relatively weak confidence in the South East is likely linked to muted domestic and exports sales growth amid ongoing challenges, including April’s rise in employers’ National Insurance Contributions. Businesses in the South East are also likely concerned about potential further tax rises in the forthcoming November Budget and reports of the tax burden as a growing challenge were more widespread here than in any other region.
Domestic sales and exports growth
Companies in the South East reported that annual domestic sales growth slowed for the second consecutive quarter in Q3 2025, easing to 1.7%. This rise was the most sluggish of any UK region and close to half the region’s historical average (3.2%). This subdued increase is likely linked to the slowdown in growth observed in the Business Services and Property sectors in the year to Q3 2025. Businesses in the region expect domestic sales growth to accelerate to 3.7% over the coming year, however the projected expansion is still marginally lower than the 4.0% rise forecast nationally.
Meanwhile there was also a marked slowdown in annual exports growth in the year to Q3 2025, to 2.2%, marginally below the national average expansion of 2.4%. Companies in the South East predict a modest uplift in exports growth to 2.7% over the next 12 months but this is one of the more pessimistic outlooks in the UK and lower than the national forecast (3.6%) and the regional historical average (3.2%).
Labour market
Businesses in the South East have cooled their demand for labour since April’s 6.7% increase in the National Living Wage and the rise in employers’ National Insurance Contributions, with the region reporting no employment growth in the year to Q3 2025. This was the lowest rate of jobs growth in the region since Q1 2021. Only the West Midlands and East Midlands, which both saw employment levels decline in the 12 months to Q3 2025, recorded a weaker performance than the South East. Companies in the region plan to uplift employment growth to 0.5% in the year ahead, however this rise is less than half the region’s historical average (1.3%) and the growth projected nationally (1.2%).
Easing concerns about the availability of skills reflect cooling regional labour market conditions, with both management and non-management skills issues less prominent in the South East compared to any other region, and significantly below their respective historical averages.
Despite the slowdown in employment growth, annual salary inflation remained unchanged from the previous quarter, at 3.0%, in line with the UK average (3.1%) but significantly above the region’s historical average (2.2%). Businesses in the South East anticipate wage inflation will ease significantly over the next 12 months, with a projected increase of 2.3%, the joint-softest forecast in the UK alongside Yorkshire & Humberside.
Input prices, selling prices and profits growth
Companies in the region reported that annual input cost inflation eased for the second consecutive quarter in Q3 2025, edging down to 3.6% and below the 3.8% growth recorded nationally. Over the coming year, businesses predict input price growth will continue to decline, easing to 2.6%, below both the region’s historical norm (2.7%) and the UK-wide forecast (2.8%).
After rising in the previous two quarters, businesses in the South East slowed the rate at which they increased their selling prices in Q3 2025, to 2.3%, broadly in line with the national average expansion (2.2%). Further moderation to 1.5% is expected over the next 12 months, with only businesses in Yorkshire & Humberside anticipating a softer rise, though this rate is marginally above the region’s historical norm (1.3%).
April’s increases in employers’ National Insurance Contributions have compounded the impacts of sluggish sales growth on profit margins in the South East. Companies reported an annual profits expansion of 1.5% in the year to Q3 2025, the softest rise since Q2 2021 and less than half the region’s historical average (3.3%). While companies in the region anticipate a significant uplift in growth over the next 12 months, the projected expansion of 3.9% is slightly lower than the 4.1% rise projected nationally.
Business challenges
April’s increases in employers’ National Insurance Contributions and the potential of further tax announcements in the forthcoming November Budget appear to be posing a greater challenge to businesses in the South East than any other region. Of the companies surveyed in the region, 69% cited the tax burden as a growing issue in Q3 2025, a new survey record high for the region and the highest proportion in the UK.
Regulatory requirements were the next most widespread concern in the South East, with 48% of respondents citing them as a growing challenge in Q3 2025. This proportion was significantly above the region’s historical norm (40%) but broadly in line with the UK average rate (47%).
Customer demand (41%) remains a prevalent concern for businesses in the South East, reflecting the sluggish domestic sales and exports growth over the year to Q3 2025, with the issue more common than the region’s historical and national averages (both 39%).
Investment
Low confidence levels and weak profits growth have reduced businesses’ appetite for investment, with the South East the only region to report a decline in capital investment in the 12 months to Q3 2025, down 0.5%. Meanwhile, UK-wide investment growth was reported at 1.8% over the same period. Companies in the region plan to increase capital expenditure by 1.5% over the coming year, though this forecast growth is lower than both the national projection (1.7%) and the region’s historical average (2.0%).
Annual R&D budget growth eased slightly in Q3 2025, softening to 1.7% which is marginally below the national (1.8%) and historical (1.9%) averages. Businesses plan to increase R&D budgets at the same pace in the year ahead, broadly in line with the rise expected nationally (1.6%).