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Economic Insight

ICAEW Business Confidence Monitor (BCM): South East

Q4 2022: Business Confidence Index sinks further in the South East

The latest Business Confidence Monitor (BCM) shows business confidence falling further across the UK as difficult economic conditions combine with political turmoil. The latter has seriously unsettled financial markets, and although some stability has been restored, recent events are likely to result in higher interest rates, taxes and government borrowing, and lower government spending, than previously expected. This has adversely affected business sentiment.

The survey results are based on telephone interviews among ICAEW Chartered Accountants that took place between 25 July and 14 October 2022.

  • The Business Confidence Index has moved further into negative territory in Q4 2022 and is now some way below the UK average.
  • Domestic sales and exports growth has been healthy in the 12 months to Q4 2022. However, both are expected to slow in the year ahead.
  • Supply-side challenges are becoming more widespread, in contrast with the UK trend. The availability of non-management skills and staff turnover are now more widely cited as growing problems than at any point since the survey began.
  • As well as this, late payments and access to capital are increasingly mentioned by companies as matters of rising concern. As is customer demand.
  • Companies are trying to tackle labour market challenges by lifting average total salaries sharply. Employment growth continues to ease.
  • Annual input price inflation is at its highest rate since the survey began, with a very similar increase expected over the coming 12 months. As a result, selling prices are up by a record rate.
  • Capital investment growth is below the UK average, and weaker growth is planned for the year ahead. Research & Development spending is similarly subdued.

Business confidence in the South East

The Business Confidence Index for the South East has fallen for the fifth successive quarter. It now stands at -22.5 in Q4 2022, a markedly lower level than the UK national figure of -16.9.

Domestic sales and exports growth

Despite the weakening of business sentiment, sales performance in the 12 months to Q4 2022 has been healthy. Domestic sales are growing by 6.2%, year-on-year, in Q4 2022. This is the strongest outturn across the UK. Over the same period, exports are up by 4.0%, a broadly similar pace to the UK average. However, the outlook for the year ahead is less favourable. Domestic sales are forecast to increase at the more modest pace of 3.8%. Exports growth is similarly expected to moderate to 3.6%.

Business challenges

Weakness in business confidence also probably reflects the wide range of challenges that companies face. Both the availability of non-management skills and staff turnover are now more widespread challenges than at any time since the survey began in 2004, with 51% of companies citing the former as a matter of increasing concern and 45% the latter. The proportion of companies for whom the availability of non-management skills is a more pressing issue is also much higher than in any other UK region or nation. Elsewhere in the UK, these supply-side issues have become less widespread than in recent quarters.

Late payments have also become a more prevalent challenge, with a fifth of businesses experiencing growing problems. This reflects growing financial pressures on companies’ customers. Businesses in the South East also face increasing difficulties with access to capital and bank charges. And the softening of sales growth expectations helps to explain why customer demand has now re-established itself as one of the more widespread challenges for businesses, after easing during the recovery phase of the pandemic.

Labour market

Widespread problems with skill availability and with recruitment underpin the sharp rise in average total salaries. In the year to Q4 2022, average total salaries increased by 3.2%, a rate some way above the historical average for the region. And a slightly stronger increase of 3.4% is planned for the year ahead, suggesting that businesses do not expect current labour market problems to ease any time soon. Annual employment growth has, however, eased from the previous quarter and now stands at 2.5% in Q4 2022. A further slight moderation is planned over the next 12 months, to 2.3%.

Input and selling prices, and profits growth

In addition to increased labour costs, ongoing supply-side disruptions and elevated energy prices continue to exert enormous pressure on businesses. Annual input price inflation of 5.9% in Q4 2022 is by far the highest rate seen in the region since the survey began. A very similar increase of 5.7% is forecast for the year to Q4 2023. In response to this, selling prices have risen at a record pace for the region (3.5%) and companies intend to increase them by an even sharper pace of 3.8% in the coming year. Against that backdrop, profits growth continues to ease from its peak in Q2 2022. It now stands at 4.4%. A much slower outturn of 2.7% is projected in the year to Q4 2023, with only companies in Wales and the North West expecting slower rises.


The past 12 months have seen only modest rises in investment spending. Businesses are raising capital investment by just 2.4%, a slower pace than the UK average. And growth in Research & Development (R&D) budgets is just in line with the national average, at 2.4%. In the year ahead, companies plan to increase capital investment by just 1.7%. R&D budgets are set to rise at the markedly weaker pace of 1.1%, when compared to its current rate.