ICAEW’s Business Confidence Monitor (BCM) for Q4 2024 – one of the largest and most comprehensive surveys of business activity - put sentiment at just 0.2 on the index, the weakest reading since Q4 2022 and down from 14.4 in the previous quarter.

The dramatic drop in confidence was likely driven by record concerns over the impact of the tax burden and weaker domestic sales growth, ICAEW said. Additionally, companies reported that they expect investment growth to slow in the year ahead, the BCM found, underlining the low sentiment reading.

Drops in confidence were recorded in every sector of the economy, with sentiment moving into negative territory in three areas of the economy. Retail and wholesale businesses were hardest hit at -6.2 on the index, followed by transport and storage at -0.3 and property at -0.2. 

By business size, confidence among small and medium-sized enterprises (SMEs) declined into negative territory for the first time since Q4 2022, recording a drop from 12.8 to -4.7. Large companies fared better, with sentiment remaining positive. [3]

The number of businesses reporting the tax burden as a growing challenge hit a record high at 41% in Q4, a significant increase on 29% in Q3 and the first time that tax worries have been the most cited challenge in the BCM’s history. Concerns were partly a reflection of changes to employers’ national insurance in the Budget, which ICAEW members said would have a negative impact on margins. The reduction in the NI threshold also came as a particularly unwelcome surprise, ICAEW said.

Domestic sales growth slowed to 3.2% in the quarter, the lowest since Q3 2021 and down from 3.8% in Q3, likely a result of wider economic conditions and concerns over the impact of October’s Budget. Export growth ticked up to 2.8% quarter-on-quarter, but remained below the historic average. [4]

ICAEW said the government should prioritise measures to boost the wider business environment to ensure Britain was the best place to invest and to start, run and grow a business.

Alan Vallance, ICAEW Chief Executive, said:

“It’s little surprise that business confidence has fallen considerably. The costs of October's Budget fell almost solely on business and, as this survey makes clear, our members have expressed concerns about measures that place additional costs on those they support and the wider economy.

“We want Britain to be the best place to invest and to start, run and grow a business. To achieve this, it’s vital that the government delivers on its mission to promote economic growth.

“We hope government will prioritise measures to boost the wider business environment and provide businesses with the clarity and stability they need.”

Suren Thiru, ICAEW Economics Director, said:

“Our data suggests that the UK economy endured a rather traumatic end to 2024 as slowing domestic activity and the aftershocks from a difficult budget caused business confidence to nosedive.

“While this significant slide in sentiment was broad-based, retailers suffered a particularly difficult time, reflecting their greater exposure to the impact of October’s budget, including the looming increase in national insurance.

"Though slowing selling price and wage costs make a February rate cut more likely by offering hope that the current upswing in inflation may fade, rising expectations for business costs in the year ahead mean policymakers will remain cautious.

“The economy is in a challenging period with stagflation a live risk and there is little in our key forward-looking indicators of sales and investment activity to suggest that a meaningful improvement is likely anytime soon.”

Inflation pressures remain in check for now

Selling price inflation slowed to its lowest level since Q1 2022 and is expected to slow further in the next 12 months, businesses reported. [5]

Salary growth slowed to 3.1% year-on-year, the lowest rate for more than two years but still double the pre-pandemic average. Notably, wage growth in the next 12 months is expected to slow to its lowest level since Q4 2021. [6]

Businesses reported that their input costs slowed to 3.7%, down from 4.2% in the previous quarter and the lowest since Q4 2021. However, companies lifted their expectations for cost inflation in the year ahead, likely due to the expected impact of the budget and greater global uncertainty. 

Against this backdrop, just 11% of businesses cited bank charge - including interest rates – as a challenge in Q4, the lowest since Q1 2022. The Institute said this was probably a reflection of the expectation of continued rate cuts from the Bank of England this year.

Investment growth set to slow

Companies reported capital investment growth of 2.6% in Q4, above the historic average of 2.1% and up from 2.4% in Q3. Businesses said that they planned to boost investment by just 1.8% in the next year, with capital investment spending set to be strongest in the energy, water and mining sector and weakest in construction.

ENDS

Notes to editors:

The full report is available on request.

1. The Business Confidence Monitor (BCM), which is one of the largest and most comprehensive quarterly surveys of UK business activity, began in 2004. 
2. 1,000 Chartered Accountants based in the UK responded to a telephone survey between 14 October and 13 December 2024. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions. 
3. The export growth historic average is 3%.
4. Confidence stood at 4.8 for large companies and 9.3 for those that are UK-listed in Q4 2024.
5. Selling price inflation slowed to 2.5%.
6. The pre-pandemic (2010 to 2019) salary growth average was 1.7%.

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:

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.