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 in the East of England improved further, and the Business Confidence Index reached +15.7 in Q1 2024.
- Domestic sales growth was similar to the UK and the region is the most optimistic about future domestic sales. Companies in the East of England also experienced the strongest export sales growth in the UK.
- Input price inflation remains high but businesses expect it to slow significantly in the year ahead. Salary growth matched the previous quarter and, unlike most other parts of the UK, businesses in the region anticipate the rate of pay growth will accelerate in the year ahead.
- Linked to the above, the East of England saw the sharpest rise in selling prices and, while growth is expected to moderate in the coming year, increases will remain significantly ahead of the historical average.
- Regulatory requirements are the most widely reported growing area of concern for businesses in the region. Customer demand and competition in the marketplace are also prevalent challenges.
- Companies in the East of England expanded capital investment at a faster rate than the UK average but plan to scale it back. The growth in R&D budgets was relatively strong and companies anticipate similar growth next year.
Business confidence in the East of England
Business sentiment continued to grow in the East of England in Q1 2024, with the Business Confidence Index reaching +15.7 in Q1 2024, moving further above the historical average for the region (+4.1) and ahead of the UK (+14.4). This marks the second consecutive increase of the index, highlighting reinforced confidence as inflationary pressures eased and sales growth improved.
Domestic sales and exports growth
Domestic sales picked up in Q1 2024, reaching 3.4%, just above the region’s historical average of 3.1% and marginally above the national average (3.3%). The region is likely to have benefitted from the strong growth in sales experienced by the Transport & Storage and Business Services sectors which are both well represented in the East of England economy. Companies are optimistic that this trend will continue throughout 2024 and the growth in domestic sales is anticipated to reach 7.0% over the next 12 months, the highest expected performance of all nations and regions.
Meanwhile, the East of England recorded the strongest growth in export sales across the UK, reaching 5.1% in Q1 2024. While businesses expect this to slightly soften in the next 12 months, with an anticipated growth of 4.8%, they are still expected to comfortably outpace the region’s historical average of 3.0%.
Business challenges
Further signs that trading conditions are improving for businesses in the region are evident in the latest survey, with a reduction in the proportion of companies reporting customer demand as a growing area of concern. Regulatory requirements are now the most widespread growing issue among East of England’s businesses. In Q1 2024, over a third of companies reported it as a greater challenge to their performance. Competition in the marketplace, while reported by 30% of businesses and one of the most prevalent challenges, remains below its historical average in the region.
The latest data also indicates that labour market issues, particularly relating to the shortage of skills, have not fully abated. Concerns about the availability of non-management and management skills had been easing in previous quarters, following the post-covid period, however, in Q1 2024 both measures are above their respective historical averages in the region.
Labour market
Despite potential underlying labour supply issues in the region, employment expanded in Q1 2024, with annual growth of 2.0%. This is marginally higher than in the previous quarter (1.8%) and above the region’s historical average (1.3%). The East of England has broadly matched the UK average in recent quarters and this is expected to continue. Businesses anticipate a slightly quicker expansion of their labour force in the next 12 months, by 2.2%, which also aligns with the national average.
There is evidence that relatively strong employment demand is impacting wages as the growth in salaries continued at 3.8% in Q1 2024, matching the figure reported in the previous quarter. Indeed, salaries remain high compared to the region’s historical average of 2.2% and, along with London, the East of England is the only region where businesses expect salary growth to accelerate in the next 12 months. At 4.0%, salary growth is projected to be the fastest of all UK nations and regions.
Input and selling prices, and profits growth
Input prices remain particularly high in the region and, although the peak in growth was reached in Q1 2023, one year on the growth in input prices is still over twice the historical average, at 5.4% in Q1 2024. This is also the highest recorded growth in this quarter across the UK. The above average input price inflation in the region is somewhat explained by the cost pressures experienced by the Business Services sector, which reported input price rises of 5.1% in the latest quarter. However, businesses forecast a sharp slowdown in the year ahead, with input prices in the East of England expected to grow by 2.9%, much closer to the region’s historical average of 2.6%.
As a result of input prices growth, companies continued to increase their selling prices. In Q1 2024, the annual selling prices of businesses in the East of England grew by 4.2%, the highest growth rate across the UK, and just below the historical record of 4.3% that was recorded in Q3 2023. Rising costs and salaries have limited profits growth, which increased at a moderate rate of 2.7%, below the region’s historical average of 3.0%. As companies forecast the growth in input prices to ease next year and sales growth to strengthen, they also expect a significant rise in profits, growing by 6.2% in the next 12 months.
Investment
Capital investment increased by 1.5% in the 12 months to Q4 2023, close to the historical average for the region (2.0%), though notably slower than the previous quarter. The outlook is less optimistic, with investment growth expected to soften considerably to 0.8% over the coming year, and is among the weakest expectations across the UK.
Companies in the East of England lifted R&D budgets by 1.5% year-on-year in Q4 2023. While this trails the historical norm for the region, businesses expect the rate to improve slightly to 1.9% in the coming year, slightly ahead of the rate predicted for the UK.
