The trajectory of inflation and what might happen with interest rates are frequent topics of conversation among ICAEW members across all sectors.

Following the release of ICAEW’s latest Business Confidence Monitor (BCM) Q1 2024 – showing a significant improvement in sentiment in comparison with the previous quarter and the 2023 average – all eyes were on ICAEW’s UK Regions’ Economic Summit with the Bank of England, which took place at Chartered Accountants’ Hall on 14 May and is now available to watch on demand. 

Huw Pill, the Bank of England’s Chief Economist, provided an update and answered questions on the economic outlook during an in-depth and insightful discussion chaired by ICAEW’s Iain Wright.

The event also offered the opportunity for delegates to explore regional issues, challenges and opportunities – those discussions across eight distinct regions of the UK are also available to watch on demand. 

Although, in general, the sentiment of members reflected the Q1 2024 BCM national result and appeared more positive than at the end of 2023, discussions centred on recurring issues, some of which are highlighted below.

Infrastructure

Infrastructure challenges including housing, transport and the impact on the labour market were key themes across all regions. 

There was a general call for investment in infrastructure. Delegates in London and the South East identified housing availability as a major drag on economic growth that could be holding back productivity gains.

Transport and infrastructure improvements are key to helping the regions’ smaller cities and towns to grow. One member in the North East commented: “HS2 should have started in the north and filtered south.”

Infrastructure extends beyond transport networks. Members in Wales highlighted unreliable mobile phone coverage as problematic, particularly in rural areas. 

In the East of England, members warned that the fragmented nature of regional efforts was hindering progress, prompting one member to call for a central coordinating body to streamline infrastructure projects, initiatives and information sharing between stakeholders. In other regions, members expressed hope that elected mayors would work together to drive large, interconnected construction projects.

Meanwhile, delegates in the South West warned that labour-market challenges were being aggravated by a lack of suitable and affordable housing, with organisations finding it difficult to recruit for lower-paid jobs when accommodation and transport networks are not available. 

Skills/employment

Skills are a key ingredient for growth, and as employment is a major factor in any decision to cut interest rates, a healthy discussion on this topic took place across all regions. 

In particular, concerns over youth unemployment and its scarring effects on young people – including the impact on future employment, future earnings and mental health – were raised in the London discussion. 

The need to better connect educational establishments with business to ensure the skills businesses need are delivered was raised in multiple rooms. “The biggest obstacle to growth is the significant skills gap in the workforce. To bridge this gap, collaboration between businesses and educational institutions is crucial to equip graduates with the skills employers need,” commented a member based in the East of England. 

In Wales attendees called for apprenticeships to be relevant to business needs and, in the Midlands, challenges finding skilled labour – especially in manufacturing – were noted. 

Although pressures in the labour market appear to be easing, delegates in the South West highlighted increases in pay of up to 6.5% to retain and recruit staff. Members in the North East, Yorkshire and Humber called for more investment in training and noted that while salaries in the region are rising at the same rate as in the previous quarter, employers are increasingly favouring outsourcing over employment.

Opportunities

Despite the challenges they face, businesses remain resilient, with the transition to net zero and growing use of technology mentioned multiple times as big opportunities. 

“We’re on the cusp of a once-in-a-generation set of opportunities, driven largely by the transition to net zero,” was the sentiment shared by a member in Scotland. Others, meanwhile, cautioned that ambition could be held back by the availability of employees with green skills.

In the Midlands, members said more was needed to be done to promote and encourage businesses to implement ESG initiatives, alongside the reality that “clients are not addressing this at a serious level because companies are focusing on short-term plans for the next three years”. 

Short-termism is a symptom of a lack of certainty and stability, with a call for more of both a key message in ICAEW’s Manifesto. The general election is set for 4 July, and once the turbulence of campaigning subsides, the hope is that an improved appetite for investment will return. 

Meanwhile, members see the growing use of technology as a double-edged sword. There is recognition that technological advancements offer significant opportunities, including improved communication, access to new markets and data-driven decision making. However, the risks associated with technology include cyber-security threats and increased energy consumption.

Technologies with long lead times, namely wave/tidal energy and hydrogen, were highlighted as big opportunities in Scotland. However, growth of these areas is contingent on access to finance. In that regard, decisions made on Threadneedle Street have a pivotal role to play. As members in Wales summed up: “Businesses are anticipating movement in interest rates and rely heavily on the decisions made by the Bank of England for future investments they make.”

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