Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) – one of the largest and most comprehensive quarterly surveys of UK business activity – stood at 16.7 on the index in Q2, the third successive quarterly rise and the highest reading since Q1 2022. Up from 14.4 in the previous quarter, sentiment is now more than double the pre-pandemic average. [1]
By sector, financial services and energy, water and mining sectors were most optimistic. Manufacturing and engineering businesses were among the least confident, mired by pessimism around domestic and exports growth and profits expectations for the coming year. Only companies in retail and wholesale and property saw their confidence levels drop in Q2. [2]
The rise in UK business sentiment was likely driven by weaker input cost inflation feeding through into stronger profits growth and positive domestic and export sales projections, ICAEW said. Businesses saw input cost inflation slow in Q2 for a fourth successive quarter. Prices growth is also expected to fall further in the year ahead, to the lowest rate since Q1 2022. [3]
Consequently, businesses did not raise prices as quickly, with selling price inflation dropping to a two-year low, a trend set to continue into 2025. Input price inflation in the year ahead is expected to be strongest in energy, water and mining, reflecting recent rises in wholesale gas and electricity prices, and weakest in retail and wholesale.[4][5]
ICAEW said the new Labour government must work closely with the business community to unlock stronger economic growth, and provide the stability and continuity needed for businesses to plan, invest and grow.
Suren Thiru, ICAEW Economics Director, said:
“These figures suggest that businesses shrugged off any distraction caused by the general election, as lower inflation and stronger expected sales growth drove an encouraging uptick in confidence in the second quarter.
“Though weakening pricing expectations among firms confirms that we are in a more subdued inflationary environment, stubbornly high wage costs indicate that the underlying price pressures the Bank of England worries about have yet to be fully quashed.
“Although these findings mean that the economy is on track for continued growth in the second quarter, the muted performance of indicators of investment activity suggest that the UK’s recovery from recession is built on rather shaky foundations.”
Alan Vallance, ICAEW Chief Executive, added:
“It’s promising that business confidence continues to increase quarter-on-quarter, despite companies continuing to face challenges. British businesses need stability and continuity so that they can plan, invest and grow.
"We look forward to working with the new Labour government to help them deliver on their manifesto promise to unlock stronger economic growth.”
Fifth of businesses raised prices to cover National Living Wage increase
Salary growth was unchanged at 3.7% year-on-year in Q2, nearly double the historical average, but is expected to slow in the year ahead. Sectorally, wage growth is set to be slowest in retail and wholesale, and strongest in manufacturing and engineering. [6]
In a separate survey carried out by ICAEW, almost half of businesses said their costs had risen because of the increase in the National Living Wage. Almost one in five firms put up prices to cover the increase, while respondents also improved efficiencies, closed pay gaps and increased upskilling of staff in response. [7]
Regulatory concerns reach four-year high
Regulatory requirements have become a greater challenge to business performance, with two-fifths of companies citing it as an increasing concern in Q2, the highest proportion for four years. [8]
Concerns over regulatory requirements were also very sector-specific: highest among companies in energy, water and mining (61%) and banking, finance and insurance (56%), with notable growth in property (50%) and retail and wholesale (42%).
Meanwhile, one in five businesses were increasingly troubled by late payments, the highest proportion since Q1 2021. Late payments appeared to be a greater challenge in some sectors, including construction, business services and manufacturing and engineering. [9]
Investment remains subdued
Companies expect to continue to grow their capital investment at around the historical average, with growth expected to be strongest in transport and storage, and weakest in IT and communications. [10]
The outlook for employment aligned with the general trends seen in sectoral confidence overall, with weak growth expected in retail and wholesale, manufacturing and engineering and property. [11]
ENDS
Notes to editors:
CONTACT: ICAEW media office tom.mackintosh@icaew.com or 07866 853841
***The full report is available on request***
The Business Confidence Monitor (BCM), which is one of the largest and most comprehensive quarterly surveys of UK business activity, began in 2004.
1,000 Chartered Accountants based in the UK responded to a telephone survey between 8 April and 20 June 2024. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions.
The general election was called five weeks into the survey period.
- The pre-pandemic average from 2010-19 is 7.2.
- The Business Confidence Index stood at 25.4 in financial services, 23.6 in energy water and mining, 10.7 in manufacturing and engineering, 7.9 in retail and wholesale and 14 in property.
- BCM measure of input price inflation stood at 4.4 in Q2 and is expected to fall to 2.7 in the year ahead.
- BCM measure of selling price inflation stood at 3.2 in Q2 and is expected to fall to 2.3 in the year ahead.
- BCM measure of input price inflation in the year ahead is expected to be 3.5 in energy, water and mining, and 1.8 in retail and wholesale.
- Salary growth is expected to slow to 3.7 in the year ahead. Wage growth will slow to 2.4 in retail and wholesale and rise to 3.6 in manufacturing and engineering in the year ahead.
- 48% of business said their costs rose due to the introduction of the National Living Wage, while 18% said they raised prices to cover the increase. Meanwhile, businesses said they improved efficiencies (21%), closed pay gaps (19%) and increased upskilling of staff (16%) in response.
- 43% of businesses cited regulatory requirements as a growing challenge in Q2.
- 21% of businesses cited late payments for customers as a growing challenge in Q2, including in construction (36%), business services (27%) and manufacturing and engineering (24%).
- Capital investment spending stood at 2.3% in Q2. In the year ahead, capital investment is expected to rise by 4.2% in transport and storage and 0.9% in IT and communications.
- Employment growth is expected to rise by 1.9% in the year ahead, 0.9% in retail and wholesale, 1.4% in manufacturing and engineering and 0.7% in property.
- Business Confidence Index methodology - The Business Confidence Index is calculated from the responses to the following:
“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”
A score was applied to each response as shown below, and an average score calculated:
| Variable | Score |
| Much more confident | +100 |
| Slightly more confident | +50 |
| As confident | 0 |
| Slightly less confident | -50 |
| Much less confident | -100 |
Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.
As one of the largest and most comprehensive quarterly surveys of UK business activity. BCM is closely watched by key policymakers, including HM Treasury, the Bank of England, British Business Bank and the Small Business Commissioner.