The latest national Business Confidence Monitor (BCM) for Q1 2024 shows a significant improvement in sentiment compared to weak yet positive confidence in the previous quarter and the average for 2023. The index rose above its pre-pandemic average for the first time since Q1 2022, as economic prospects brightened.
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 January to 22 March 2024.
- Sentiment improved for companies in the South East and is now ahead of its historical average, but it lags most other regions and the UK as a whole.
- Domestic sales growth has been on a downward trend in recent quarters but remains above the historical average. However, there was a notable pickup in export sales growth and companies in the region are expecting future sales to improve.
- The South East experienced higher input price inflation than the national average but businesses anticipate these will return near to the historical norm. Salary growth may have peaked, but businesses expect it to grow at a similar rate over the next 12 months and selling price inflation is expected to remain high too.
- Profits growth weakened further but is expected to exceed the historical average in the year ahead.
- Regulatory requirements are now the most widespread challenge faced by companies in the South East, but concerns about customer demand continue.
- Growth in capital investment spending was weak, with businesses planning to slow growth further. In contrast, companies anticipate raising their R&D budgets next year.
Business confidence in the South East
Sentiment in the South East rose again in Q1 2024 with the Business Confidence Index reaching +8.8, above the region’s historical average of +5.2. However, businesses in the South East are among the least confident across regions and nations and lag the UK average (+14.4).
Domestic sales and exports growth
While domestic sales growth has followed a downward trend for the last six consecutive quarters, at 3.7% in the year to Q1 2024, growth remains above the historical average for the region. It also outpaced the national average of 3.7% and businesses anticipate sales growth to accelerate in the next 12 months to 4.8%, slightly below the UK projection of 5.2%.
Despite the weak economic backdrop, the South East is among the regions that have experienced the fastest increase in exports in the year to Q1 2024. Export sales growth rose in Q1 2024, expanding by 3.5%, which is just above the regional average of 3.2%. Encouragingly, export sales growth is expected to improve further over the next 12 months, to reach 4.6%, broadly matching the national average (4.7%).
Business challenges
Regulatory requirements are now the most widespread growing issue in the South East, with 41% of businesses citing it as a growing challenge in Q1 2024. Marketplace competition and customer demand are also among the most widely reported challenges, suggesting that the trading environment, while showing signs of improving, remains difficult.
However, transport problems resurfaced as a growing concern in recent quarters. In Q1 2024, one in four companies in the South East reported this as a growing challenge, the second largest proportion after Yorkshire & Humberside and perhaps related to delays at major UK ports. Issues surrounding the labour market have improved for companies in the South East, with further reductions in the proportion of businesses citing availability of management and non-management skills as growing concerns in Q1 2024 to 12% and 21% respectively, close to their historic averages.
Labour market
Employment expansion has remained steady in recent quarters. Employment growth in the year to Q1 2024 was 1.8%, similar to the rate of growth recorded in Q3 and Q4 2023. Although above the region’s historical average, employment growth in the South East lags most nations and regions. Companies have muted expectations for employment growth in the next 12 months, forecasting an average growth of 1.5%, below the expectations of businesses in most other parts of the UK.
Salary growth remains above the historical average, despite a recent slowdown. In the year to Q1 2024, salaries grew by 3.7%, easing from the peak reached in Q3 2023 (4.5%), which also represented the region’s historical highest point. Salary growth was in line with the national average but lower than recorded in several nations and regions. Companies anticipate that pay pressures will ease only slightly and remain elevated, with growth of 3.5% in the year ahead compared to the historical average of 2.1%.
Input and selling prices, and profits growth
The South East experienced one of the highest rises in input prices over the past year, only behind the East of England and the West Midlands. In the year to Q1 2024, input prices grew by 5.1%, almost twice the region’s historical average of 2.6%. This could be explained by the sectoral profile of the region, with Business Services accounting for a large proportion of activity in the South East. The sector reported the joint-highest input cost prices in the latest quarter, also at 5.1%. However, businesses in the region anticipate a sharp slowdown in the next 12 months, expecting input prices to rise by 2.8%.
Selling prices have followed a similar trend and, after growth peaked in Q1 2023 at 4.6%, the rate of growth has now eased to 3.6% in Q1 2024. Companies forecast a further slackening in the next 12 months, projecting average growth of 2.5%.
Price pressures and the difficult economic backdrop has impacted company profits growth, which were on a downward trend throughout most of 2023. In the year to Q1 2024, profits increased by 2.9%, below the historical average of 3.3% but ahead of the UK average. South East businesses are optimistic about future profits growth, and anticipate they will rise by 4.8% in the next 12 months.
Investment
Growth in capital investment in the South East was among the lowest in the UK, at 2.0% in the year to Q1 2024, and similar to the previous quarter and the historical average for the region (1.9%). Businesses are planning to slow growth further over the next 12 months, with expected growth of just 1.1%.
The growth in R&D budgets decelerated in Q1 2024 compared to the previous quarter, at 1.6%, falling below the region’s historical average of 1.9%. Yet companies expect to raise their R&D budgets in the next 12 months by 2.2%, one of the highest expected rates among UK nations and regions.
