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 latest quarterly findings are based on the period 15 July to 20 September 2024.

1. Business confidence remains high despite a slight dip in Q3 2024, as input price and wage inflation continued to ease, but perhaps more slowly than businesses anticipated. Companies remain optimistic about the pace of domestic sales, exports and profits growth for the year ahead.
2. Confidence remains highest in largely desk-based services sectors, including IT & Communications, Business Services and Banking, Finance & Insurance, alongside Construction which is now the most confident sector. Meanwhile, sentiment slumped in Energy & Water and Transport & Storage.
3. Regulatory worries and customer demand continue to be the greatest growing challenges for businesses but the proportion of businesses citing competition in the marketplace and the tax burden increased in Q3 2024.
4. Despite high levels of confidence and the first reduction in interest rates, companies plan to slow the growth in capital investment and R&D spending to below historical norms.
5. The gap in confidence between regions widened as sentiment improved markedly in Wales and is now the most confident part of the UK, while Yorkshire and the Humber experienced a sharp fall in confidence and recorded the lowest value in Q3 2024.

• The Business Confidence Index dropped slightly to +14.4 in Q3 2024, matching the Q1 2024 level, and remained well above the historical norm (+5.3).

• Supporting confidence, domestic sales strengthened, and businesses are expecting significant improvements over the next 12 months. However, exports sales growth slipped and projections for the coming year are somewhat weaker than stated in previous quarters.

• Construction is now the most confident sector, ahead of Banking, Finance & Insurance, IT & Communications and Business Services. Retail & Wholesale and Manufacturing remain below the average and confidence has slumped in Energy & Water and Transport & Storage.

• Most sectors are optimistic about domestic sales and exports for the coming year.

The Business Confidence Index slipped to +14.4 in Q3 2024, returning to the level recorded earlier this year in Q1 2024. Despite the slight fall, business confidence remains high and is comfortably above the historical norm of +5.3. An improvement in domestic sales growth no doubt helped to maintain high levels of sentiment, increasing to 3.8% in Q3 2024 from 3.3% in the previous quarter and widening the gap to the historical average (3.1%). Businesses remain optimistic that domestic sales will improve further in the year ahead, projecting growth of 5.1%.

Perhaps weighing on confidence in the quarter somewhat was the performance of exports growth, which slipped to 2.7% in Q3 2024, and is now below the historical average of 3.0%. Businesses are confident that exports growth will pick up and expect growth of 4.0% over the next 12 months, and while this is above the historical average achieved, this projection is down on business projections from previous quarters, likely reflecting weaker global trading conditions and high shipping costs.

Confidence remains highest in services sectors, including Banking, Finance & Insurance (+21.8), IT & Communications (+21.3) and Business Services (+18.8), alongside Construction which is now the most confident sector (+25.3). Meanwhile, sentiment slumped in Energy & Water (+4.4) and Transport & Storage (+1.9). An uplift in confidence in Retail & Wholesale lifted the sector much closer to the national average, to +12.1, but declines in confidence scores in Manufacturing & Engineering (+8.9) and Property (+8.6) saw them move further away from the economy-wide average.

Companies in all sectors continue to expect domestic sales growth to rise in the year ahead and projections for each sector are ahead of their historical norms. Sectors are also optimistic about exports sales growth over the next 12 months and most anticipate growth to exceed the historical average, with only the Energy & Water sector expecting growth to slow significantly.

• Regulatory requirements continue to be the most widely reported challenge for by businesses and are most prevalent in Banking, Finance & Insurance, Transport & Storage and Business Services.
• Customer demand is the greatest rising challenge to businesses in Retail & Wholesale and Manufacturing & Engineering, both sectors reporting below-average confidence.
• Ahead of the autumn Budget, concern about the tax burden rose to its joint-highest level.

Concerns about regulatory requirements matched the historical average in Q3 2024, with 40% of businesses citing them as a growing challenge and slightly down on the previous quarter (43%). However, the proportion of businesses reporting the issue rose in some sectors, notably Banking, Finance & Insurance, Transport & Storage and Business Services. Among factors that may be influencing responses in these sectors include the increased uncertainty surrounding the implementation of Basel 3.1 and the government’s plans to renationalise rail operators and forthcoming EU border checks.

Customer demand continues to be a major challenge for businesses, with 35% reporting it as a rising concern. While it is second to regulatory requirements for most sectors, it is the primary challenge facing Retailers and Manufacturers, cited by around half of businesses in each sector in Q3 2024, and up from the previous quarter. Weak demand is clearly weighing on confidence in both sectors, which is below the economy-wide average, with domestic sales, both realised and expected, lagging the national average. A larger proportion of businesses cited competition in the marketplace as a growing concern (32%) in Q3 2024 than in the last quarter, with the concern most prevalent among Retail & Wholesale businesses (41%).

Perhaps the most notable change to the challenges reported by businesses in Q3 2024, is the rise in the proportion citing the tax burden. In Q3 2024, 29% of businesses raised tax as an issue, matching the historical high for this response. The rise was greatest in Energy & Water (44%), and tax is now the most prevalent issue reported by businesses in the sector. This is likely to be linked to the increase in the Energy Profits Levy to 38% from 1 November 2024. The change also extends the Levy period to 2030 and abolishes the investment allowance. While this is specific to the Energy sector, the proportion of businesses reporting the tax burden rose across most other sectors, perhaps indicating business concerns of potential forthcoming tax rises yet to be announced in the autumn Budget in October.

Elsewhere, the availability of non-management skills has gradually ticked up in recent quarters and is now reported by 22% of businesses, matching the proportion reporting labour turnover as a growing concern. This is likely indicative of underlying labour supply issues and is most notable in Construction (31%) and Retail & Wholesale (28%).

• Input price inflation slowed further in the year to Q3 2024 and is projected to fall marginally below the historical average over the next 12 months.
• Selling price inflation dropped significantly compared to the previous quarter and companies are planning to slow the rate of increase in selling prices further over the coming year, however, the projected rises are above the historical average.
• All sectors expect input price inflation to continue to soften in the year ahead and the majority anticipate selling price inflation will also ease over the next 12 months. Property, Construction and Energy, Water & Mining are the exceptions to this.

Input price inflation slowed to 4.2% in the year to Q3 2024, as price growth eased for the fifth consecutive quarter. Despite CPI inflation edging slightly upward to 2.2% in July, the rate of input cost growth continued to decline from the previous quarter. This reflects the general trend in global commodity prices and softening energy prices following April’s reduction in the OFGEM energy price cap.

Looking ahead, companies expect input price growth to moderate further, with an anticipated increase of 2.4% in the coming year and below the historical norm (2.6%). However, the return to the historical norm has been a protracted process and the gap between expectations and realised inflation rates is still large, indicating that the moderation of input price rises has been slower than most companies expected.

Annual input inflation varied across sectors in Q3 2024. Retail & Wholesale recorded the smallest increase over the past year, at just 3.5%. This softening in price growth will be partially linked to April’s reduction in energy prices. All sectors predict that input price inflation will decline in the year ahead. There is some variation between sectors, however, with IT & Communications expecting the largest increase of 3.5% and, at the other end of the scale, Energy, Water & Mining projecting the lowest price rise over the next year, at just 0.8%.

Meanwhile, selling price inflation experienced a notable drop from the previous quarter in Q3 2024, falling to 2.6%. Further moderation is anticipated, with companies planning to increase their selling prices by 2.2% over the coming year, however, this will still be above the 1.4% historical average.

Most sectors expect selling price inflation to continue on its downward trajectory over the next year. However, after no increase in Q3 2024 compared to Q2 2024, October’s energy price cap rise is expected to increased selling prices in Energy, Water & Mining, with a 1.5% rise anticipated in the year ahead. Property and Construction are the only other sectors expecting to lift their selling prices over the next 12 months, with increases of 2.4% and 1.8% respectively. These increases are potentially linked to the expectation that demand will increase as the Bank of England gradually reduces interest rates over the coming year.

• Employment growth continued at the same rate as the previous quarter, remaining above the historical average and a modest uplift is anticipated next year.
• The sectoral employment outlook is broadly positive with IT & Communications and Business Services companies the most optimistic about the coming 12 months.
• Salary growth experienced a modest slowdown from the previous quarter and reached a two-year low in Q3 2024. Companies expect further easing over the next year, but the projected increase remains significantly above the historical average.

Employment rose in line with the previous quarter in Q3 2024, with annual growth of 1.8%. Over the next year, companies expect to increase their staff levels at a slightly faster rate of 2.1%, further exceeding the historical average of 1.3%. IT & Communications and Business Services are planning the most significant increases in employment over the coming year, with projected rises of 3.2% and 3.0% respectively. In contrast, only Energy, Water & Mining and Transport & Storage plan to slow the rate of growth over the next 12 months, reflecting the relatively low levels of confidence in these sectors.

Meanwhile, salaries continued to rise in Q3 2024 but, at 3.6%, the rate of increase eased to the lowest rate since Q2 2022. However, this rate of salary growth is still significantly above the historical average of 2.1%. As inflationary pressures have significantly reduced, the elevated growth could be attributed, at least in part, to continued skill shortages within the UK labour market. The availability of non-management skills as a growing concern has ticked-up in the last two quarters, with businesses seemingly finding it a greater challenge to hire suitable staff. Over the next year, companies are optimistic that wage growth will soften further toward the historical average, with a 2.9% increase anticipated, despite increasing their employment demand over the period.

At a sectoral level, Energy, Water & Mining recorded the fastest growth in salaries of any sector in Q3 2024, with a 4.5% rise. Most sectors expect wage growth to soften over the next 12 months. However, after sharp growth in the year to Q3 2024 and their plans to reduce employment growth over the coming year, Energy, Water and Mining businesses are projecting the smallest increase in salaries at just 2.2%. Business Services is the only sector forecasting an increase in salary growth over the next 12 months and even then, this is marginal, rising from 2.6% in the year to Q3 2024 to 2.7% for the year ahead.

• After growing in the previous two quarters, profit growth slowed in Q3 2024, dropping below the historical norm but companies expect a significant uplift next year.
• Despite projected profits growth, companies plan to reduce the pace of capital investment and R&D budgets growth over the next 12 months.
• Energy, Water & Mining reported the sharpest rise in capital investment growth over the past year, but the sector expects to halve the rate in the coming year.

After successive increases in the previous quarters, profits growth declined for the first time this year in Q3 2024, rising by 2.8% year-on-year. But business expectations that cost and salary inflation will dissipate alongside an anticipated uptick in sales are fuelling strong predictions for future profits growth. Companies forecast that profits will rise by 5.1% in the next 12 months, significantly outperforming the 3.1% historical average.

Nevertheless, despite the expected uplift in profits and the overall largely positive outlook for the year ahead, companies are still downbeat about their investment plans over the next 12 months. Businesses recorded a very slight increase in annual capital investment growth to Q3, rising to 2.4% from 2.3% in the previous quarter. However, despite the first reduction in interest rates falling during the survey period, high borrowing costs and a degree of economic uncertainty is likely feeding into concerns about the likely return on investment, and companies are planning to cut investment growth to 1.9% over the coming year, dropping below the historical average of 2.1%.

Companies have a similar outlook for R&D expenditure. Budgets declined for the second consecutive quarter, falling below the historical average (1.9%) to 1.7% in Q3 2024. Businesses expect this trend will continue, with a projected increase of just 1.2% over the coming year.

At a sectoral level, the relatively strict regulatory environment continues to drive investment in Energy, Water & Mining, with the sector recording the sharpest uplift in investment growth of 4.2% in Q3 2024. However, the removal of the investment allowance as part of the changes to the Energy Profits Levy is no doubt impacting plans for investment in the sector, and Energy, Water & Mining companies are planning to halve investment growth over the year ahead to 2.1%, dipping below the historical average of 2.9%. Energy, Water & Mining has historically had the highest rate of investment growth but in the year ahead, Retail & Wholesale and IT & Communications have the strongest expectations, and both plan stronger investment growth than their historical averages

• Confidence remained positive for all sectors in Q3 2024, and Construction is now the most optimistic sector, while there were significant declines for Transport & Storage and Energy, Water & Mining.
• All sectors expect domestic sales growth to exceed their historical averages over the coming year, with most sectors anticipating an uplift in profits growth but Transport & Storage is the exception.
• The general downward trend for input prices and salaries will resume over the next year across all sectors and profits growth is set to accelerate, with IT & Communications and Construction companies the most optimistic.

Business confidence remained positive for all sectors for the third consecutive quarter in Q3 2024. CPI inflation returning to more manageable levels and August’s cut in the Bank Rate have underpinned the improved sentiment observed within the Construction sector, which rose to the top of the confidence rankings at +25.3. The government consultation on planning reforms and new higher housebuilding targets will also have buoyed sentiment in the sector.

Alongside Construction, services sectors including Banking, Finance and Insurance, IT & Communications and Business Services are the most confident sectors, each comfortably above the economy-wide average. Sentiment in Manufacturing & Engineering and Retail & Wholesale remains below average, with the sectors reporting growing customer demand challenges.

While still positive, there were significant declines in confidence for the Transport & Storage (+4.4) and Energy, Water & Mining sectors (+1.9) compared to the previous quarter. Regulatory concerns appear to be a key contributor to the contractions in the former as the government announced new plans to renationalise rail operators and growing concerns about the potential impact of forthcoming EU border controls. New legislation to target water pollution may have impacted sentiment in Energy & Water but tax concerns, with the upcoming alterations to the Energy Profits Levy, were likely the main cause of the slump in confidence. In Q3 2024, 44% of companies in the sector cited the tax burden as a rising challenge, just short of the historical high (45% in Q1 2023).

With more companies incorporating Artificial Intelligence (AI) into their business practices, IT & Communications businesses recorded a further uplift in domestic sales growth in Q3 2024, with a 5.5% increase over the year. The sector recorded the sharpest rise and this strong performance is forecast to continue, with the anticipated 7.2% increase behind only the Energy, Water & Mining sector (7.5%). While Energy, Water & Mining companies predict strong domestic sales growth next year, they are pessimistic about export prospects, with projected growth of 1.4%, the lowest of any sector.

Businesses in most sectors predict an uplift in profits growth over the next 12 months. Even Energy, Water & Mining companies, which reported a decline in profits growth of 1.3% in the year to Q3 2024, expect growth to improve over the coming year. Only the Transport & Storage sector, which outperformed all other sectors in the past year, forecasts a reduction in profits growth next year to 4.3%, down from 5.6% reported in Q3 2024. IT & Communications companies have the strongest predictions for profits growth for the year ahead, anticipating a 7.3% rise. These strong expectations are likely fuelled by the sector’s projected domestic sales (7.2%) and exports growth (5.5%) over the next year.

Input price inflation has proven sticky for the majority of sectors. IT & Communications, Transport & Storage and Construction all recorded price rises of 4.6% in Q3 2024, having either increased or stayed constant with the previous quarter. Looking ahead, all sectors expect input price inflation will ease over the coming year, with the Energy, Water & Mining sector anticipating the smallest increase of just 0.8%. The softening of input price inflation is expected to feed into selling prices for most sectors. After keeping selling prices constant with the previous quarter in Q3 2024, Energy, Water & Mining companies are predicting the smallest selling price increase of any UK sector over the coming year with an increase of just 1.5%, despite the upcoming 10% rise in the energy price cap in October.

• Business confidence was positive for all UK nations and regions for the third quarter in a row, however, there has been considerable movement compared to the trends seen in Q2 2024.
• Business sentiment was strongest in Wales, followed by the South East, while confidence declined significantly in Yorkshire & Humber, the North West and the East of England.

Confidence was again positive for all UK regions and nations in Q3 2024, however, within this story, there has been a significant shift compared to the previous quarter. After being the least optimistic region in the UK in Q2 2024, Wales has jumped to the top of the rankings as confidence soared to +26.1. The election of a Labour government, matching the devolved administration, is likely a key contributor to this improved sentiment. The UK Government has already pledged a reported £7.3bn toward business infrastructure in Wales over the next five years and companies may also be relishing the prospects of a stronger relationship between Westminster and the devolved government in Cardiff.

Conversely, sentiment within Yorkshire & Humber collapsed in Q3 2024 and is now the least confident region in the UK, with a score of just +0.6. Reductions in both domestic sales and exports growth in the region resulted in profits failing to grow from the previous quarter, and companies also reported increased challenges regarding regulatory requirements and competition in the marketplace. Elsewhere, notable declines in sentiment were also reported in the North West and East of England.

Further analysis of confidence for each region and nation is available in their respective reports on ICAEW Business Confidence Monitor.

• Sentiment dipped slightly across the majority of company types but remains positive. Only companies listed outside the UK reported increased confidence from Q2 2024.

Business confidence remained positive for all company types and sizes in Q3 2024. All UK listed companies (+17.0) were the most confident, despite a slight fall from the previous quarter. Companies listed outside the UK (+16.5) followed closely behind and were the only company type to report improved confidence in Q3 2024.

• The UK economy grew by 0.5% in Q2 2024, building on robust growth of 0.7% in Q1, however monthly data shows the economy has been flat so far in Q3.
• CPI inflation increased slightly to 2.2% in July and August, but the Monetary Policy Committee (MPC) reduced interest rates to 5.0% in early August, the first decrease since March 2020.
• The Chancellor's review of the new government's fiscal inheritance pointed to a £22bn departmental overspend ahead of the autumn Budget in October.

The UK economy posted strong growth in the first half of 2024, with the most recent quarterly data showing GDP expanded by 0.5% in Q2 2024, following growth of 0.7% in Q1. However, the most recent monthly data reported that growth had stalled so far in Q3, with no GDP growth in June or July. However, there is reason to believe that the economy is still carrying momentum from the first half of the year and that consumer spending, which has so far only had a muted impact on GDP growth in 2024, will help drive growth in the second half of the year. Indeed, retail sales volumes growth increased by 0.7% in July and strengthened to 1.0% in August.

Lower inflation should also support consumer spending. After maintaining the Bank of England’s 2% target in June, CPI inflation increased slightly to 2.2% in July and August. The slight rise in inflation was widely anticipated and the rate will likely continue to fluctuate around the BoE target in coming months. Ofgem’s announcement that the energy cap will rise by 10% on 1 October is one such example and will place upward pressure on inflation in that month. Despite July’s marginal inflation increase, the MPC voted to lower the Bank Rate from 5.25% to 5% in its early August meeting, the first decrease since March 2020, but the MPC voted to leave the rate at 5% on 19 September.

A key area of uncertainty is centred on the UK’s fiscal position and the tax and spending plans of the new government. The Chancellor's review of the new government's fiscal inheritance pointed to a £22bn departmental overspend this year, much of which will persist. The Chancellor will set out her plans in the autumn Budget on 30 October and while the government has ruled out raising VAT, income tax and National Insurance, it has warned about difficult decisions ahead. This warning is seen by many commentators as a signal of possible tax rises in the forthcoming Budget.

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