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 14 October to 13 December 2024.

1. Business sentiment contracted sharply in Q4 2024, only just remaining positive. Higher business taxes announced in the Autumn Budget are likely the principal cause of this drop in optimism, alongside the slowdown in economic activity. Business confidence declined across all sectors and regions compared to the previous quarter.
2. Following the policies announced in the Budget, the tax burden has become the most prevalent rising challenge for businesses, just above regulatory requirements, reaching a survey-record high in Q4 2024.
3. Domestic sales growth slowed compared to Q3 2024 and was only marginally above the historical average. Exports growth increased slightly compared to the previous quarter but remained below the historical average. However, companies remain optimistic about domestic and export sales growth, predicting both will improve over the coming year.
4. As the rate of growth in input costs and salaries eased further in Q4 2024, profits growth rose above the historical average and companies predict a further uplift over the next 12 months. However, these strong projections are not expected to translate to capital investment or R&D budget growth which are both expected to ease over the next year.
5. Sentiment fell in all sectors in Q4 2024. The Construction sector, previously the most confident sector, experienced the most significant decline of any sector, only just remaining positive, while Retail & Wholesale is the most pessimistic sector in Q4 2024, dropping into negative territory.

• The Business Confidence Index contracted significantly in Q4 2024 – falling to +0.2, dropping below the historical average (+5.2) and reaching its lowest level since Q4 2022.
• Domestic sales growth softened compared to the previous quarter, but businesses still expect a significant uplift in the rate of expansion over the next 12 months. Exports sales growth picked up slightly compared to Q3 2024 but lags the historic average, although companies expect further improvements in the year ahead.
• Sentiment declined in all sectors, and the Retail & Wholesale, Property and Transport & Storage sectors all dipped into negative territory. Having been the most confident sector in Q3 2024, the largest drop in confidence was in the Construction sector. Banking, Finance & Insurance is now the most confident sector but was still significantly down on the previous quarter.
• Despite plunging sentiment, most sectors remained optimistic about domestic sales and exports for the coming year.

Confidence dropped for the second quarter in a row in Q4 2024 and fell to its lowest level since Q4 2022. The Business Confidence Index fell from +14.4 in the previous quarter to +0.2, dropping below the historical average of +5.2. The Autumn Budget appears to have had a direct impact on sentiment, with the weekly survey data showing a plunge in confidence in the weeks following the event, before recovering around the middle of November.

Businesses are likely to be concerned about economic prospects for the year ahead, following policies announced in the Budget, including the increase in Employer's National Insurance Contributions (NICs) and the 6.7% uplift in National Living Wage from April 2025 onwards. At the same time, domestic sales growth eased compared to the previous quarter, dropping from 3.8% in Q3 2024 to 3.2% as demand softened. However, this was still marginally ahead of the historical average (3.1%) and despite a slight softening in their outlook, businesses remain optimistic that domestic sales will improve over the next 12 months, anticipating growth of 4.9%.

Export sales growth experienced a modest pickup in Q4 2024, rising from 2.7% in the previous quarter to 2.8% but remaining below the historical average of 3.0%. Businesses maintain their optimism seen in previous quarters about future exports growth, projecting they will grow by 4.0% in the coming year.

All sectors saw confidence decline in Q4 2024 with the Retail & Wholesale (-6.2), Property (-0.3) and Transport & Storage (-0.2) sectors all slipping into negative territory. The largest swing in confidence was in the Construction sector, dropping from the most confident sector in the previous quarter (+25.3) to narrowly avoiding falling into negative territory, as sentiment fell to just +0.2 – matching the national average. Banking, Finance & Insurance was the most confident sector in Q4 2024 at +9.1, and despite a significant decline from the previous quarter, sentiment remained above the historical average (+7.2).

Companies in most sectors continue to expect domestic sales growth to rise over the next 12 months, 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 Construction sector expecting growth to slow significantly.

• The policies announced in the Autumn Budget alongside other sector-specific tax hikes resulted in the tax burden being the top rising challenge for UK companies in Q4 2024, closely above regulatory requirements, with the proportion of citations reaching a survey-record high.
• Regulatory concerns remain a prevalent rising challenge. These worries were still most prevalent in the Banking, Finance & Insurance sector, while there were significant increases within the Energy, Water & Mining and Construction sectors.
• Despite the positive outlook toward sales growth over the next 12 months, customer demand continues to be a prominent rising challenge, particularly for Retail & Wholesale companies.

There was widespread speculation about the tax and spending measures the Chancellor would adopt ahead of the Budget on 30 October which fed into business sentiment. Significant tax increases were announced in the Budget, larger than many expected. As a result, the survey recorded a spike in concern across UK businesses in Q4 2024, with the proportion of companies citing the tax burden as a rising challenge reaching a survey-record high of 41%, and over twice the historical average of 17%. This trend was reflected across most sectors, with only the Transport & Storage and Property sectors below their respective highs but concern about the tax burden was above its historical averages in all sectors. It was most prevalent among Energy, Water & Mining companies, with the increase in the Energy Profits Levy to 38% on 1 November 2024 also impacting the sector.

Regulatory requirements continue to be a prominent rising challenge faced by UK companies in Q4 2024. These requirements were the second most reported issue faced by businesses, closely behind the tax burden, with 40% of businesses citing them as a growing challenge, unchanged from the previous quarter and matching the historical average. Despite a slight decrease in citations compared to the previous quarter, regulatory concerns were again most prevalent in the Banking, Finance & Insurance sector. The ongoing uncertainty surrounding the implementation of Basel 3.1 could be a contributor to these worries. Elsewhere, the proportion of businesses citing regulatory requirements spiked in both the Construction and Energy, Water & Mining sectors.

Despite the positive sales growth outlook, customer demand continues to be a major challenge for businesses, with a third of businesses reporting the issue as a rising concern in Q4 2024. Customer demand was again the most common challenge facing Retailers, cited by over half of businesses in the sector in Q4 2024, and unchanged from the previous quarter. Weak domestic demand is clearly weighing on confidence within the sector, with domestic sales growth significantly lagging behind the economy-wide average – a trend that companies expect to continue over the next 12 months.

Customer demand also appears to be a factor weighing on sentiment in the Construction sector. The issue was cited by 43% of businesses in Q4 2024, up from 32% in the preceding quarter. However, regulatory concern is now the most widely cited concern in the sector, reported by half of businesses and the highest since the start of the survey. This reflects a raft of issues facing the Construction sector related to planning delays, environmental and fire regulations and proposed planning reform.

In contrast, only 11% of UK companies across all sectors cited bank charges as a rising concern in Q4 2024. While this remains slightly above the historical average of 10%, it was the lowest proportion since Q1 2022. The small proportion of citations is likely a reflection of expectations that the Bank of England will continue to gradually reduce interest rates over the next 12 months.

• Input price inflation eased further in the 12 months of Q4 2024 and is expected to fall further over the next year, but will remain above the historical average.
• Selling price inflation continued its downward trajectory in Q4 2024 and companies are planning to continue to slow the rate of prices increases further over the coming year.
• All sectors expect input price inflation will continue to soften over the next 12 months and the majority expect selling price inflation will continue to slow in the year ahead. Property and Energy, Water & Mining are the exceptions to this.

Input price inflation slowed for the sixth consecutive quarter, with prices rising by 3.7% in the year to Q4 2024. Even though CPI inflation rose to 2.6% in November following October’s increase in the OFGEM energy price cap, businesses expect input cost growth to continue to ease. In the year ahead, companies forecast an increase of 2.7%, only marginally above the 2.6% historical average. However, projected input cost inflation is higher than reported in the previous quarter, likely due to the expected impact of the Budget, rising energy prices and greater global uncertainty.

There was significant variation in annual input inflation between sectors. The Energy, Water & Mining sector recorded the smallest input cost increase in the year to Q4 2024, dropping below the 2.9% historical average, to just 2.6%. Meanwhile, the growth in input prices in Banking, Finance & Insurance is falling more slowly and, at 4.5%, remains over twice the historical average (2.0%). All sectors expect input price inflation will soften further in the year ahead, with the Construction and IT & Communication sectors each expecting the fastest rate of growth at 3.1%. Energy, Water & Mining companies anticipate the slowest rise, at just 2.2% over the next 12 months and below the sector historical average (2.2%).

As input cost inflation continued to ease, selling price growth also softened slightly in Q4 2024, falling to 2.5% from 2.6% in the previous quarter. Companies expect selling price inflation to slow further over the year ahead to 2.2%, remaining above the historical average (1.4%).

Most sectors expect selling price inflation to continue on its downward trajectory over the next year. After marginally decreasing their selling prices in the 12 months to Q4 2024, the Energy, Water & Mining sector is one of only two sectors (alongside Property) expecting to lift selling prices over the next 12 months, with an increase of 1.7%. However, this rise will be among the lowest of all sectors, only outpacing the Banking, Finance & Insurance sector, at 0.9%. Property companies plan to lift selling prices by 2.3% next year compared to 2.2% in the last year.

• Employment growth eased slightly compared to the previous quarter, but remained above the historical average with a modest uplift projected for the year ahead.
• There is some variation in the employment outlook between sectors. Energy, Water & Mining businesses expect the strongest employment growth over the next 12 months, while Transport & Storage companies project only a small rise.
• Salary growth continued to slow in Q4 2024 and, while companies expect further easing over the next year, the projected rise is still above the historical average.

Companies increased their staff levels at a marginally slower rate in Q4 2024 compared with the previous quarter, with annual growth of 1.7% compared to 1.8% in Q3 2024. The Energy, Water & Mining and Banking, Finance & Insurance sectors recorded the fastest employment growth in the year to Q4 2024, both up significantly from the previous quarter, with increases of 4.1% and 3.9% respectively.

Businesses expect to increase the rate of employment growth at a slightly faster rate of 1.9% in the year ahead, marginally widening the gap to the historical average of 1.3%. The Energy, Water & Mining and Business Services sectors anticipate the largest increases in employment growth over the next 12 months, projecting growth of 3.7% and 2.5% respectively. At the other end of the scale, the Transport & Storage and Retail & Wholesale sectors are planning only modest increases of 0.5% and 0.9% respectively in the coming year.

At the same time, salary growth continued to slow in Q4 2024, with wages rising by 3.1%, the lowest increase since Q1 2022. However, this pace of salary growth is still significantly above the historical average of 2.1%. Even though companies expect to increase the rate at which they increase their staff levels over the next 12 months, they project that wage growth will soften further, with a projected increase of 2.7% over the next 12 months.

Despite the slowdown in wages growth, it remains above its respective historical average in all sectors. Manufacturing & Engineering recorded the strongest increase in salaries of any sector in Q4 2024, with growth of 3.6%, compared to the sector historical norm of 2.1%. Most sectors expect wage growth will continue to slow over the coming year. The IT & Communications and Business Services sectors are two exceptions to this trend, with the former expecting the strongest growth of any sector in the year ahead, with a projected increase of 3.3%.

• After slowing in the previous quarter, profits growth picked up in Q4 2024, climbing above the historical norm, and companies expect a significant uplift next year.
• Despite the projected uplift in profits growth, companies plan to reduce the growth of capital investment and R&D budgets in the coming year.
• Transport & Storage reported the sharpest rise in capital investment growth over the past year – a position the sector is expected to maintain next year, despite companies scaling back their investment plans.

After softening in Q3 2024, profits growth picked up in the year to Q4 2024, rising by 3.3% year-on-year, and climbing above the historical average of 3.1%. The improved outlook for domestic sales and exports growth alongside the view that input costs and salary growth will continue to slow, underpins the significant uplift in expected profits growth. Over the next year, companies predict profits will increase by 5.0%, significantly outperforming the 3.1% historical average.

However, the expected uplift in profits has not fed through to investment strategies for the year ahead, with companies still planning to moderate capital expenditure over the next 12 months. However, the trends in expected and realised investment growth have diverged in recent quarters, with businesses reporting that expenditure on capital increased for the second consecutive quarter, rising by 2.6% in the 12 months to Q4 2024. This uplift marked the sharpest increase since Q4 2022 and widened the gap to the historical average (2.1%). Despite recent trends and the modest reductions in interest rates in August and November, borrowing costs remain high and elevated levels of uncertainty are likely driving concerns about the possible return on investment. As a result, companies plan to reduce the rate of investment growth in the coming year to 1.8%, lagging the historical average.

Businesses have comparable expectations for their R&D budgets growth, which eased for the third quarter in a row in Q4 2024, dropping further below the historical average (1.9%) to 1.6%. Companies plan another modest slowdown over the next 12 months, with a projected increase of just 1.4%.

At a sectoral level, capital investment spending growth was strongest in Transport & Storage, with the sector reporting a 4.2% uplift in Q4 2024. This expansion is likely linked to the EU's forthcoming Entry/Exit System (EES) alongside increased activity in the air transport sector over the past year. Ongoing regulatory requirements continued to drive the 3.8% investment growth in Energy, Water & Mining in Q4 2024 and businesses within the sector also anticipate the sharpest rise over the next 12 months, with a projected increase of 4.1%. However, most sectors expect much slower investment growth next year, with Business Services and Construction companies projecting the smallest increases, at just 0.9% and 0.6% respectively.

• Confidence declined across all sectors in Q4 2024. The Construction sector recorded the largest swing in score compared to the previous quarter, however, Retail & Wholesale is now the most pessimistic sector, after falling into negative territory.
• Despite this drop in confidence, all sectors continue to expect domestic sales growth will outperform their historical averages over the coming year, with most sectors anticipating an uplift in profits growth.
• All sectors expect input price growth to ease over the next 12 months. This expectation, alongside moderate salary growth and improved sales, underpins the uplift in profits growth anticipated in all sectors over the coming year, with IT & Communications and Business Services companies the most optimistic.

Business sentiment contracted significantly across all sectors in Q4 2024. It is of little doubt that concern about the tax burden was principal to this fall and almost all sectors cited the tax burden as a rising challenge at record levels in Q4 2024, with only the Property and Transport & Storage sectors having previously recorded a higher proportion of citations.

Indeed, the tax burden was one of three major concerns impacting Construction businesses, as the sector recorded the largest absolute decline in confidence, falling from +25.3 in Q3 2024 to just +0.2 in the final quarter of the year. Construction was the most confident sector in Q3 2024 but the relatively weak economic performance recorded at the end of the year appears to have impacted customer demand, which, alongside rising regulatory and tax concerns, have seemingly weighed heavily on sentiment among Construction companies.

However, Retail & Wholesale was the least confident sector as confidence dropped from +12.1 in the previous quarter to -6.2 in Q4 2024. This pessimism was likely linked to the announcements in the Autumn Budget but also the slump in domestic sales growth, which dropped to 1.1% in Q4 2024, down from 2.8% in the previous quarter. The news about rises to the National Living Wage, NICs and reduction in Business Rates relief from 75% to 40% for 2025/26, alongside the pending changes to laws encompassing zero-hours contracts set out in the Employee Rights Bill, which will all present significant challenges for businesses in the sector over the coming year, will also be weighing on confidence in the Retail & Wholesale sector.

Despite a significant decline compared to Q3 2024 (+21.8), the Banking, Finance & Insurance sector was the most optimistic sector in the UK economy, with a Business Confidence Index score of +9.1. This relative positivity was supported by strong sales growth, as domestic sales growth increased for the fourth consecutive quarter in Q4 2024, rising by 6.1% over the year, nearly double the historical average of 3.4%. At the same time, exports growth climbed for the third successive quarter, matching the domestic growth rate of 6.1%. While businesses expect both types of sales to ease marginally in the year ahead, the sector is projected to remain among the strongest in the UK. Only companies in the IT & Communications sector (6.7%) project stronger domestic sales growth in the year ahead, as companies continue to incorporate Artificial Intelligence (AI) into their business practices in 2025.

Most sectors reported a softening in input price inflation in Q4 2024 compared to the previous quarter and all sectors anticipate a further slowdown over the next 12 months. Businesses in the Energy, Water & Mining sector expect the lowest input price increases over the coming year, with a predicted increase of just 2.2%. Easing input cost pressures are projected to translate to slower price rises in the year ahead across all sectors with only the Energy, Water & Mining (1.7%) and Property (2.3%) sectors expecting to lift their selling prices at a faster rate over the coming year.

Stronger sales growth and easing cost pressures mean that almost all sectors expect increased profits growth over the next 12 months. Buoyed by strong domestic sales growth expectations alongside the easing cost pressures, businesses within the IT & Communications sector expect the strongest uplift in profits of any sector, with a 6.7% increase anticipated. Only companies in the Construction sector, burdened by a range of concerns, project a decline in profits growth next year, and even the slowdown is expected to be marginal, dropping from 3.8% in the year to Q4 2024 to 3.7% for the year ahead.

• Business confidence declined across all UK nations and regions, with the majority of regions falling into negative territory.
• Large swings in confidence have resulted in the South West and Wales becoming the most pessimistic UK regions and, despite a slight decline from the previous quarter, business sentiment was strongest in Scotland.

Confidence deteriorated across all regions in the UK in Q4 2024, with most regions sitting in negative territory for the first time since Q4 2022. Companies in the South West were the least confident of all UK regions in Q4 2024, with the Business Confidence Index for the region at -15.5. The election of a Labour government appeared to initially bolster sentiment in Wales, making it the most confident region in the UK in Q3 2024, however, confidence plummeted from +26.1 to -12.1 in Q4 2024.

Meanwhile, sentiment in Scotland experienced a much softer decline compared to all other UK nations and regions in Q4 2024, resulting in the region becoming the most confident within the UK, at +13.1. Businesses in Scotland largely maintained their positive outlook for the next 12 months, with upticks in both domestic sales and exports growth likely aiding the comparative resilience of the region.

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

• Sentiment contracted across all company types. Small private companies and non-exporters saw the largest declines, falling into negative positions.

Business confidence dropped for all company types and sizes in Q4 2024 but the survey results suggest that confidence has fallen most among smaller companies, likely linked to the policies announced in the Autumn Budget. Non-Exporters (-4.8) were the least confident, after a significant fall compared to the previous quarter. Private SME companies sat only marginally above this, with the index sitting at (-4.7) in Q4 2024. Exporters (+5.8) and All UK Listed (+9.3) companies are the most optimistic.

• The increases in taxation and public spending in October’s highly anticipated Budget were larger than many expected, with businesses shouldering the largest tax rises.
• After expanding by 0.4% in Q2 2024, the UK economy ground to a halt in Q3 2024. The latest monthly data shows the economy declined by 0.1% for the second consecutive month in October.
• After dropping below the Bank of England’s 2% target in September, CPI inflation climbed in October and November, reaching 2.6%. The Monetary Policy Committee voted to lower the Bank Rate from 5% to 4.75% in November and left rates unchanged in December.

The broad shape of the Autumn Budget was largely anticipated, but the scale of the increases in taxation and public spending was larger than many expected. The bulk of the increase in taxation will come from higher Employer National Insurance contributions. Companies will likely try to pass on some of the extra employment costs in the form of higher prices. Profit margins will also likely be squeezed, reducing the funds available for firms to invest. Businesses will likely also consider lower pay rises and scaling back their recruitment plans. Other significant announcements in the Budget included a 6.7% uplift in the National Living Wage as well as increases to capital gains tax and the introduction of VAT on private school fees.

Meanwhile, after a strong start to the year, the latest quarterly data showed growth in the UK economy stagnated in Q3 2024, remaining unchanged from the previous quarter. The most recent monthly data shows the economy has slipped into decline, contracting by 0.1% in both September and October. However, there are some signs the economy is gathering momentum: after declining in the two previous months, retail sales volumes increased by 0.2% in November, potentially signalling an uplift in consumer expenditure.

However, a potential downside risk to this recovery is the upward trajectory of CPI inflation. After dropping below the Bank of England’s 2% target in September, the rate of inflation ticked up to 2.3% in October, rising further to reach 2.6% in November. This increase in inflation was widely anticipated and the rate will likely continue to rise above the BoE target in the coming months. OFGEM’s energy cap was uplifted by 10% on 1 October and with a further rise in January, energy prices will continue to put upward pressure on inflation. Despite October’s inflation increase, the Monetary Policy Committee voted to lower the Bank Rate from 5.0% to 4.75% in its November meeting but kept rates unchanged in December.

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