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.
- Sentiment continued to rise in the South East and is now ahead of most other regions and the UK.
- However, both export and domestic sales growth continued to fall in Q2 2024, each dropping below their respective historical averages, but businesses in the region are expecting both to improve over the next 12 months.
- Input price inflation continued to decline in the South East but remained stronger than selling price growth which hindered profits growth in the year to Q2 2024. Strong profit growth is expected in the year ahead as businesses in the region increase prices at a sharper rate than input cost inflation.
- Regulatory requirements remain the most widespread challenge faced by companies in the South East, followed by competition in the marketplace.
- Growth in capital investment spending was the strongest in the UK, but is expected to moderate in the coming year. Companies plan to raise their R&D budgets in line with the historical average growth rate.
Business confidence in the South East
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Business sentiment in the South East increased for the third consecutive quarter in Q2 2024. The Business Confidence Index rose sharply to +21.9 from +8.8 in Q1 2024. This score was over four times the historical average of +5.4 and among the strongest scores in the UK, behind only the East of England. This strong performance was likely underpinned by falling inflation and strong profits and sales growth expectations, particularly among Business services companies which are prevalent in the South East.
Domestic sales and exports growth
South East companies reported that domestic sales growth continued on its downward trajectory in Q2 2024, with the 3.1% expansion only marginally below the historical average for the region (3.2%). Only Scotland saw a smaller increase in the year to Q2 2024. Businesses expect growth will pick up in the year ahead to 5.8%, with the region set to outpace the national average of 5.3%.
Export growth also fell below the historical average (3.2%) in Q2 2024, with an increase of just 2.6%. Businesses in the region have a more positive outlook for the year ahead, projecting growth of 4.3%. Despite this improvement, export growth is predicted to lag behind the UK, with businesses nationally expecting an increase of 4.5% in the next 12 months.
Input and selling prices, and profits growth
Companies in the South East reported that input price inflation continued to soften in Q2 2024 and had one of the smallest increases in the UK at just 3.9%. Over the next year, businesses expect input price inflation will fall below the historical average (2.6%), with a 2.4% rise anticipated.
Selling price inflation slowed for the fifth consecutive quarter in Q2 2024, to 3.3%. This increase was broadly in line with the national average of 3.2% but still significantly above the 1.3% historical average for the region. Businesses in the region expect to moderate growth in their selling prices over the coming 12 months to 2.4%, compared to 2.3% nationally.
The lower rise in selling prices compared to the uplift in input costs in the year to Q2 2024 eroded the profits growth of South East companies. As a result, profit growth continued to decline in the region to 2.6%, dropping below the national growth rate of 3.1%. However, companies in the South East are the most optimistic in the UK, in terms of profit growth, with a 6.2% increase anticipated for the year ahead. If fulfilled, this increase will be nearly double the historical average of 3.3% and the largest rise since Q2 2015.
Labour market
Employment growth eased slightly in Q2 2024 compared to the previous quarter, dropping to the lowest rate since Q3 2021. However, the 1.7% rise was still broadly similar to the annual growth seen nationally (1.8%). Companies in the region are planning to grow staff levels at the same rate over the year ahead, however this anticipated rise is one of the weakest expected increases in the UK, with only the midlands regions predicting slower growth. However, the recruitment outlook is stronger than the historical average (1.3%) and businesses in the region were less likely to report labour market challenges around skills and staff turnover than in most other regions.
Salary growth slowed compared to the previous quarter and the 3.4% increase was the slowest growth rate among all regions and nations in Q2 2024. Only a slight slowdown is expected in the year ahead, with an anticipated growth of 3.2%, matching the national average.
Business challenges
The proportion of companies citing regulatory requirements as a growing concern continued to rise, reaching 43% in Q2 2024, matching the national average and making it the most widespread issue in the region. Competition in the marketplace continues to be a prominent challenge in the region after seeing a spike in reports compared to the previous quarter, to 34%. This is more prevalent than in most other regions.
Despite a notable drop compared to Q1 2024, customer demand was again one of the most prevalent issues for businesses, while there was also a marked increase in reports of late payment from customers to 24%, above the national average of 21%.
Investment
Companies in the South East report that growth in capital investment spending increased compared to the previous quarter, outpacing all other regions in the UK, at 3.3%. However, this strong growth will be short-lived, with companies set to reduce growth to 1.9%, below both the historical average (2.0%) and expected national increase (2.1%).
Businesses in the region increased their R&D budgets by 2.3% in Q2 2024 rising above the historical average (1.9%). A marginal slowdown is expected over the next 12 months, with budgets set to increase by 1.9%.
