ICAEW’s Q3 Business Confidence Monitor (BCM), while remaining in positive territory, has dipped marginally from Q2’s position. The decrease in confidence reported by the index, from 6.1 (Q2) to 2.9 in Q3, was due to economic challenges as bank charges and weather woes weigh heavy on UK businesses.

Although there are signs that recruitment pressures and input cost inflation have started to ease, access to finance and regulatory challenges are foremost in members’ minds, particularly those working in smaller businesses.

Members regularly comment on the difficulty of operating in an uncertain environment caused by the political backdrop. With the forthcoming Autumn Statement and general election, uncertainty is proving a barrier to growth. As one member put it: “Everyone will sit on their hands until the election.”

Business impact

In construction, members report experiencing delays in projects taking off and having to either wait for funding, approval, or both. Falling demand in the UK is forcing businesses to look overseas and to rely increasingly on the public sector, with criticism aimed at a “crippling” procurement process which “takes far too long and requires extensive time and effort”.

Mortgage term expirations affect employee mental health and work productivity, and likely contributed to a recent drop in retail volumes. Unregulated “buy now pay later” options create hidden financial risks, potentially leading to a future crisis. This could further impact discretionary spending and domestic sales.

Despite somewhat controlled input costs, liquidity, notably in construction, has tightened. Manufacturers are struggling to raise prices with retailers fearing demand decline. Although input cost reductions are coming through, as one member commented: “You must push to get them.”

Interest rates

Across multiple sectors, interest rates are having a noticeable impact on consumer spending and business investment. Although businesses appear to be more insulated and better able to adapt than individuals, much depends on the level of debt exposure. A practice firm in the West Midlands that services manufacturing clients commented: “The ones that don’t have debt are doing ok, but for those that do – interest rates are killing.”

Labour challenges

With all sectors finding life difficult, businesses report cutting costs by reducing staff numbers: “The issue now is not how quick we can get labour, but how quickly we can get rid of labour.” The exception is small practice firms where labour remains the biggest challenge, with apprentices easy to recruit but “impossible to retain” and an “inability to hire qualified staff, with those just qualified expecting large salaries”.

There is real concern that an increase in the National Living Wage will put additional pressure on retail, hospitality and manufacturing businesses, with a knock-on effect through payrolls to maintain pay differentials at a higher level.

Mental health has been raised in several member discussions and cited as a “massive issue we’ve yet to see the full effect of”, with a potential impact on the number of people fit to work. We’ve heard reports of people affected in the workplace by issues presented by their children.

Investment decisions

Businesses report “holding fire” on investment decisions until the base rate plateaus and they have more certainty on how high rates will go. The HS2 narrative hasn’t helped, with a negative impact on confidence causing a ripple effect through supply chains.

Although full capital expensing announced in the Spring Budget is available, “you need a corporation tax liability and there is no cash flow benefit – full capital expensing doesn’t help businesses go to the bank to secure funding for investment”. Members working in manufacturing stress the importance of large infrastructure projects that are government-backed, to help businesses go “cap in hand to the bank”.

There is a consistent call for a clear and coherent industrial strategy for the UK with a much hoped-for response to the Inflation Reduction Act in the US. “Government is not making it attractive for many companies to stay in the UK,” reported a member working in semiconductors.

Access to finance

Rising interest rates increase financing costs and deplete businesses’ cash reserves. Frustration in interactions with banks remains an ongoing issue. Criticism is aimed primarily at high street banks, who have been “slow to open accounts”, with members highlighting “the loss of personal relationship managers” as a principal cause of these issues.

Late payments are adding to finance woes, with cheque payments “becoming a thing again”. Although tougher measures announced to tackle the issue of late payments have been welcomed, some members question whether they go far enough. A member who owns a manufacturing business in the Midlands commented: “It’s the larger players on 120 days that knocks things out. We need legislation, as big companies do whatever they want.”

While local authority money is available, “it’s bitty and bureaucratic”. Members in the property sector call for simplification of the process and a “reduction in the transactional friction in getting money into the hands of those that can do something with it”.

Export financing faces challenges as costs rise, demanding higher rewards for overseas ventures. One member reported that although there is political will at the top to drive exports, there are “funding decision delays with it taking too long to be told no”.

ICAEW recently responded to the UK Parliament Treasury Committee Call for Evidence on SME Finance.

Regulation concerns

Regulation was highlighted as a growing concern in Q2’s BCM. “The chances you’ve done something regulatory in the last week is much more regular – it’s a ratchet process going up and up,” summarises the feeling shared by members, especially those working in small businesses.

“When you respond to tenders you get a long list of policies you need to submit – with every new tender there are requests for policies you’ve never heard of.” Regulation is often cited as giving larger companies, with more resources, a competitive advantage.

Keeping up to date with the changing import/export regime is also proving difficult. Where demand from overseas is not the problem, “finding our way through regulation is”. A practice firm that advises businesses reported “no lack of appetite for cross-border trade” but cautioned that “the bureaucracy alongside the risk of not understanding the regulations and being in breach of them” serves to discourage.

Member insights shape ICAEW’s stance for the Autumn Statement and guide our Manifesto for the upcoming election. To participate, reach out to Chris Lane (chris.lane@icaew.com), ICAEW’s Senior Policy Manager.

Despite ongoing challenges, ICAEW’s Resilience and Renewal campaign showcases inspiring business success stories, with ICAEW members actively driving growth, skill development and trade opportunities.