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Economic Insight

ICAEW Business Confidence Monitor (BCM): South East

Business Confidence Index sinks further in the South East

The latest Business Confidence Monitor (BCM) shows business confidence falling further. Difficult economic conditions continue, though there has been some easing in the political turmoil of the previous period, which seriously unsettled financial markets. As a result, some economic stability has been restored, even though September’s events have resulted in higher interest rates, taxes and government borrowing, and lower government spending. But the global economic background continues to look very challenging.

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 interviewing is continuous, the latest findings are based on the period 17 October to 16 December 2022.

  • The Business Confidence Index is in firmly negative territory, and now sits at its lowest recorded level since Q2 2009.
  • Both domestic sales and exports are broadly in line with the UK average, but businesses expect the pace of growth to slow for both in the year ahead.
  • The tax burden is now a more widely cited challenge in the South East than any other UK nation or region. Financial challenges, such as access to capital and bank charges, are also becoming more widespread concerns.
  • The availability of non-management skills and staff turnover remain very prominent issues, although they are easing from recent highs. Possibly linked to this, companies plan to moderate their employment growth.
  • Annual input price inflation is at its highest rate since the survey began, with a similarly sharp increase expected over the coming 12 months. As a result, selling prices are up by a record rate.
  • Both capital investment and Research & Development (R&D) spending growth are below the UK average. Businesses plan to slow the rate of growth further in the year ahead.

Business confidence in the South East

The Business Confidence Index for the South East has fallen for the sixth consecutive quarter. It now stands at -26.0, the lowest recorded reading in the region since Q2 2009. The index is only lower in Scotland and Yorkshire & Humber.

Domestic sales and exports growth

Domestic sales are rising by 5.9%, the same rate as the UK average. For exports, growth currently stands at 3.7%, which is just below the national trend. However, the outlook for the year ahead is more modest. Domestic sales are forecast to increase at the slower pace of 4.1%, while a 3.5% rise is expected for exports. The expected slowdown for the latter of these contrasts with the UK-wide outlook, where growth is projected to strengthen.

Business challenges

Weakness in business confidence also probably reflects the wide range of challenges companies continue to face. The availability of non-management skills and staff turnover remain the most widespread problems for businesses. Both are at rates some way above their historical averages for the region, with 39% of companies citing the former as a matter of increasing concern and 36% the latter. However, neither challenge is quite as widespread as in recent quarters. Developments include the departure of workers from the labour market before and during the pandemic, and restrictions on the movement and hiring of workers from the EU, following Brexit.

Beyond the labour market, the tax burden is a growing challenge for 30% of companies. This is the highest rate of incidence across all UK nations and regions, and the most widespread that the issue has been in the region since the survey began in 2004. Recent fiscal announcements may be underpinning this. Financial challenges are also coming to the fore. Access to capital is now cited as a growing source of difficulty by 19% of companies, the highest percentage since Q1 2012. Clearly a major explanation for this is the tighter financial environment businesses are operating in due to interest rate hikes in the survey period. Bank charges have also risen in prominence, with 16% of companies being increasingly pressed by this issue.

Labour market

The fact that issues surrounding skill availability and staff turnover are starting to alleviate probably reflects a more modest employment outlook. Staff levels are up by 2.9%, but companies plan only a 1.8% increase in the year ahead. This trails the UK-wide outlook.

However, high inflation rates are amounting to upwards pressure on wage claims, meaning that salaries are still rising at a markedly faster pace than historical norms. They are up 4.1%, the sharpest increase since the start of the survey. A similar increase of 4.0% is planned for the 12 months ahead.

Input and selling prices, and profits growth

Businesses are also facing considerable input cost pressures, underpinned by continued elevation in European energy prices and ongoing disruptions to supply chains. Annual input price inflation of 6.2% is by far the highest rate seen in the region since the survey began. A slightly slower rate of 5.3% is forecast for the coming year. In response to this, selling prices have risen at a record pace for the region (4.2%). Companies intend to increase selling prices by 3.3% in the coming year, around three times the region’s historical average.

Against that backdrop, profit growth has shown some recent resilience, strengthening to 4.8%. A slower outturn of 3.4% is projected, however, with only companies in the North East, West Midlands and East of England expecting weaker rises.


The past 12 months have seen only modest rises in investment spending. Businesses are lifting capital investment by 2.9%, a slower pace than the UK average. Growth in R&D budgets is similarly below the national average, at 2.0%. And the weakness in business confidence is revealing itself through investment intentions of companies in the year ahead. Growth in both capital investment and R&D budgets is expected to slow to 1.8% and 1.2%, respectively. This is a concerning development, given the importance of both forms of spending in enhancing productivity and, thus, the competitiveness of businesses in both domestic and international markets.