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 April to 22 June 2024.

1. Business sentiment rose again for the third successive quarter, as input cost inflation continued to ease, domestic sales stabilised and exports improved, feeding through to stronger anticipated profits growth.
2. Retail & Wholesale, Manufacturing & Engineering and Property are not sharing the improvement in confidence. Sentiment is strongest in service sectors alongside Energy, Water & Mining and Transport & Storage.
3. Despite expectations of strong sales growth, concerns about customer demand are widespread and late payments are a growing issue in some sectors. Regulatory worries are highest overall and, although they are concentrated in Banking, Finance & Insurance and Energy, Water & Mining, have risen in other sectors.
4. Companies expect to grow their capital investment at around the historical average but plan to continue to grow their workforces at a faster rate. The employment outlook aligns to sectoral confidence with weak growth expected in Retail & Wholesale, Manufacturing & Engineering and Property.
5. Sentiment in all regions remains positive but the gap in confidence between them has narrowed.

• The Business Confidence Index rose to +16.7 in Q2 2024, the highest since Q1 2022 and the third successive quarterly rise, up from +14.4 in Q1 2024.

• After declining in recent quarters, domestic sales growth stabilised and businesses are expecting significant improvements over the next 12 months. Export sales growth accelerated for the second consecutive quarter in Q2 2024 with this trend forecast to continue over the next year.

• Banking, Finance & Insurance continues to be the most confident sector, followed by Energy, Water & Mining and Construction. However, sentiment in Retail & Wholesale, Property and Manufacturing & Engineering is below the national average.

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

The Business Confidence Index rose to +16.7 in Q2 2024, the highest since Q1 2022. It marked the third successive quarterly rise and was up from +14.4 in Q1, widening the gap to the pre-pandemic average of +7.2 from 2010-19. The overall rise in business sentiment is supported by weaker input cost inflation and positive domestic sales and exports projections feeding through to stronger anticipated profits growth.

Confidence improved in most sectors, but remains highest in Banking, Finance & Insurance, at +25.4. Energy, Water & Mining is now the second most confident sector at +23.6, up from +6.7 in the previous quarter. Confidence in these sectors is at it highest since Q4 2021. In total, sentiment rose in seven of the nine sectors covered by the BCM, with the index dipping only in Property and Retail & Wholesale, which is now the least confident sector at +7.9 in Q2 2024. Confidence in Manufacturing & Engineering is only marginally higher at +10.7, broadly in line with the +9.7 recording in the previous quarter, with domestic sales growth in the sector continuing to fall and dipping below the historical average in Q2 2024.

Improved business confidence is underpinned by expectations that the growth in domestic and export sales will increase over the next 12 months. After declining in each of the last five quarters, domestic sales growth remained unchanged in Q2 2024 at 3.3%, above the historical average of 3.0%, and businesses anticipate growth will increase to 5.3%. Businesses are similarly confident about the growth in export sales, which rose for the second consecutive quarter, bringing them to their historical norm of 3.0%. Overall, companies anticipate that export sales growth will hit 4.5% in the year ahead.

Companies in most sectors continue to expect domestic and export sales growth to rise considerably in the year ahead and projections for each sector are ahead of their historical norms. However, businesses in Manufacturing & Engineering anticipate slower rises than the economy-wide average on both measures.

• Regulatory requirements remain the top-cited rising issue, but while they are concentrated in the already highly regulated Banking, Finance & Insurance and Energy, Water & Mining sectors there was notable growth in Property and Retail & Wholesale.
• Even though businesses have a positive outlook for sales growth in the coming year, trading conditions remain challenging, with concerns about customer demand the second most cited issue and late payments reported by one in five businesses as a growing concern.
• After falling back over recent quarters, the availability of non-management skills is becoming an increasingly prevalent issue for a number of sectors, including Transport & Storage and Construction.

Challenges relating to regulatory requirements increased again in Q2 2024, with 43% of businesses citing this as a growing issue, the highest since Q2 2020. High levels of regulatory concern tend to be very sector-specific, with companies in Energy, Water & Mining (61%) and Banking, Finance & Insurance (56%) most likely to report them as an issue. However, 50% of Property businesses cited the issue, up from under 40% at the end of 2023. Similarly, regulation has grown as an issue for Retail & Wholesale (42%). Respondents have typically cited general concerns over increased scrutiny and reporting requirements and a perceived greater administrative burden, which relates to existing as well as new regulations. But specific topics also arise, for example, environmental, social and governance (ESG) issues are particularly prevalent in the Property sector.

Despite their optimism about future sales, customer demand continues to be a major challenge for businesses and 35% report it as a rising concern. Construction companies (46%) are most concerned, no doubt reflecting that high interest rates continue to stifle demand, with domestic sales growth in the sector still lagging the historical norm. Concerns are also high in Retail & Wholesale (42%) which is similarly suffering from below average domestic sales growth. However, the most widespread concern for Retailers is still competition in the marketplace, now reported by 45% of businesses in the sector, compared to 30% nationally and above the historical sector average of 40%.

Alongside worries about customer demand and competition, there are other signs that trading conditions remain challenging for businesses. In Q2 2024, 21% of companies reported that late payment from customers was a growing issue and is most pronounced in certain sectors, including Construction (36%), Business Services (27%) and Manufacturing & Engineering (24%).

Labour market issues have abated in recent quarters but the results for Q2 2024 provide some evidence that the availability of non-management skills may be a growing problem for businesses. Overall, the issue was cited by 21% of businesses, but concerns were more pronounced in the thriving Transport & Storage sector (26%) but also in the Manufacturing & Engineering (26%) and Construction (24%) sectors where domestic sales are currently relatively subdued.

• Input cost inflation continued to soften in the year to Q2 2024 and is expected to moderate further toward the historical average in the year ahead.
• Selling price inflation remained unchanged from the previous quarter, but businesses expect to raise selling prices more slowly over the coming year, though rises will remain above the historical norm.

Annual input price inflation continued to ease in Q2 2024 as price growth slowed for the fourth consecutive quarter to 4.4%. This cooling of price growth is linked to the wider trend in global commodity prices which have generally softened or steadied along with lower energy costs feeding through to companies following the reduction in the OFGEM energy price cap in April. CPI inflation returning to the 2% target in May will undoubtably be welcome news for UK businesses and has fed into their predictions for the coming 12 months. Companies anticipate input prices will continue to moderate in the year ahead, to 2.7% which is broadly in line with the historical average of 2.6%.

The majority of sectors saw input price inflation ease compared to Q1 2024, with Manufacturing and Engineering seeing the smallest increase of just 3.3%. However, in recent months, wholesale gas and electricity prices have increased leading to an uplift in input prices for businesses within the Energy, Water & Mining sector. Construction companies also experienced a modest increase in input price growth compared to Q1 2024. Looking ahead, all sectors foresee input price inflation softening over the coming 12 months, with Retail & Wholesale and Transport & Storage companies expecting the smallest increases in costs.

Despite the slowdown in input price growth, selling price inflation remained steady at 3.2% in the year to Q2 2024, still well above the historical average of 1.4%. However, businesses are expecting to increase sales prices at a much slower rate in the coming year, with prices set to increase by 2.3%.

There is some variation between sectors, however. Manufacturing & Engineering, Property and Energy, Water & Mining companies (even with the reduction in the OFGEM energy price cap) all reported an uplift in selling price inflation in Q2 2024 compared to the previous quarter. Over the next 12 months, Energy, Water and Mining is the only sector expecting selling price inflation to rise, with an anticipated expansion of 2.8% next year.

• Employment growth slowed slightly in Q2 2024 but remained stronger than the historical average, a trend which is expected to continue over the coming 12 months.
• Salary growth matched the previous quarter, with the increase in the National Living Wage perhaps slowing the fall in growth.
• The employment outlook closely aligns to sectoral confidence with businesses in the IT & Communications sector expecting the strongest employment growth over the next 12 months, while Retail & Wholesale and Property anticipate the lowest expansion.
• April’s increase in the National Living Wage has impacted just under a quarter of businesses surveyed, either significantly or moderately, with Retail & Wholesale companies particularly affected.

After an uplift in the previous quarter, employment growth slowed marginally in Q2 2024, recording an annual increase of 1.8%. Despite easing, the rate of expansion still outpaced the historical average of 1.3%. At a sectoral level, Transport & Storage recorded the strongest increase of 3.2%, more than tripling the historical average of 1.0%. Retail & Wholesale experienced the slowest rise of just 0.5%. The sector is contending with a number of headwinds that may be impacting hiring decisions, including the recent rise of the National Living Wage (NLW) in April and faltering domestic sales growth.

Overall, companies expect to raise their staff levels at a similar pace over the next 12 months, with growth of 1.9% anticipated. Companies within the IT & Communications sector are expecting the sharpest employment in the coming year, largely reflecting the strong future domestic sales and profit growth forecast by businesses in the sector. Likely buoyed by the prospect of an upcoming interest rate cut boosting domestic sales, Construction firms are also expecting comparatively strong employment growth of 3.0% over the next year.

Salary growth has been gradually softening in recent quarters. However, labour costs increased by 3.7% in Q2 2024, matching the growth rate in the previous quarter. This cessation in the downward trend is likely linked, in part, to the rise in NLW. Businesses expect a marginal slowdown in the rate of salary increase to 3.2% in the coming year as inflationary pressures fade. This will still be higher than the historical average of 2.1%. Banking, Finance & Insurance is the notable exception, with salaries expected to grow in line with the past 12 months in the year ahead, rising by 3.5%.

A separate ICAEW survey of 491 companies exploring the impact of the NLW found that 23% have seen their costs adversely affected by the increase in NLW either significantly or moderately. Companies within the Retail & Wholesale sector were particularly impacted due to their comparatively greater dependence on low-paid workers. The survey also asked businesses what action they had taken or intend to take to tackle the increase in NLW. Around a fifth of businesses have already improved efficiencies, including using automation and investing in technology. A similar proportion have closed the pay gap between levels or roles or increased their prices. Looking ahead, businesses plan to address increased costs through improving efficiencies, upskilling their staff and diversifying their revenue streams.

• Companies experienced a further uplift in profit growth in Q2 2024, equalling the historical average. Businesses are predicting further improvement in the coming year as input cost inflation continues to ease.
• Despite increased profits and sales growth, growth in capital investment and R&D budgets levelled off in Q2 2024 and companies are not expecting to raise their investment in capital or R&D in the coming year.
• Capital investment growth for Transport & Storage companies rose to double the historical average and the sector anticipates the highest increase in investment next year.
• The growth in staff training budgets matched the previous quarter in Q2 2024 and businesses are expecting to increase budgets at a similar rate in the year ahead.

Profit growth improved for the second quarter in a row in Q2 2024, rising by 3.1% year-on-year, matching the historical average. This boost in profits has undoubtably been aided by falling input cost inflation and increased exports and with these trends expected to continue over the coming year, it is unsurprising that businesses anticipate further uplifts in profit growth. Over the next 12 months, companies expect profit growth of 4.5%, which, if fulfilled, would be the highest expansion since Q3 2008.

However, despite strong profit expectations and sustained growth in confidence in recent months, companies do not plan to increase their investment growth. Capital investment growth remained steady at 2.3% in Q2 2024, equalling the growth in the previous quarter, but businesses intend to slow investment growth marginally in the year ahead to 2.1%, broadly in line with the historical average of 2%. Businesses’ caution around their future investment plans could be attributed to political uncertainty and concerns regarding return on investment, especially as borrowing costs remain elevated. For now, at least, businesses would prefer to increase employment levels to meet rising demand.

It is a similar story for R&D, with budgets rising by 1.9% in the latest quarter, equalling the historical average. However, as with capital investment, businesses anticipate this will moderate slightly to 1.6% for the year ahead.

At a sectoral level, capital investment spending growth was strongest in Transport & Storage, likely linked to new import restrictions at the start of the year as well as buoyant activity in the air transport sector, resulting in a spike to 5.4%. The sector expects to ease investment growth in the coming 12 months but still anticipates the strongest growth at 4.2%.

Against the weak investment outlook, companies increased their staff training budgets in line with the previous quarter in Q2 2024. In the coming year, businesses plan to grow these training budgets at a similar pace to the past 12 months.

• Confidence rose in most sectors and is highest in Banking, Finance & Insurance but there were declines for both Property and Retail & Wholesale.
• All sectors foresee strong domestic sales growth over the coming year relative to their historical average, supported by continued slowdown in input costs and selling price inflation.
• Companies in the Transport & Storage and IT & Communications sectors have the strongest expectations for domestic sales, while those in Energy, Water & Mining are most positive about exports. As a result, these three sectors are expecting the largest profits growth over the next 12 months.

All sectors recorded positive confidence levels for the second successive quarter in Q2 2024. The increasing likelihood of an upcoming interest rate cut from the Bank of England has undoubtedly been a key contributor to confidence in the Banking, Finance & Insurance sector, which continued to be the most confident sector (+25.4). This expectation is also likely to have boosted sentiment in the Construction sector, which saw its third consecutive increase to +23.1. Strong export and profit expectations have bolstered confidence in Energy Water & Mining, which experienced the largest uplift in confidence, rising to +23.6 in Q2 2024 from +6.7 in Q1.

While still positive, Property (+14.0) and Retail & Wholesale (+7.9) saw confidence drop compared to the previous quarter and are among the most pessimistic sectors alongside Manufacturing & Engineering (+10.7). Challenges relating to customer demand are prominent for businesses in each of these three sectors and the greatest issue facing Retailers and Property companies. Retailers are still contending with constrained consumer spending, while high borrowing costs are stifling demand in the Property sector. Manufacturers are dealing with both disappointing exports sales growth and weak domestic sales growth, which has dropped for the fifth successive quarter and now sits below the historical average.

As demand in the air travel sector has largely returned to pre-pandemic norms, Transport & Storage experienced the fastest domestic sales growth in Q2 2024, rising by 6.7% and more than doubling the historical average of 2.9%. Despite forecasting a modest slowdown in growth over the next 12 months, businesses in the sector, alongside IT & Communications, are expecting the sharpest growth of 6.3% over this period. Despite relatively weak domestic sales growth in Q2 2024, the Construction sector is predicting a marked uplift in the coming year, likely linked to increased prospects of a forthcoming interest rate cut.

Exports growth was notably strong among the service sectors in the year to Q2 2024. IT & Communications had growth of 3.9%, followed by Banking, Finance & Insurance (3.8%) and Business services (3.1%). While each of these sectors anticipate improvements over the coming year, Energy, Water & Mining and Transport & Storage companies are expecting the largest increases in exports, with growth of 5.9% and 5.6% respectively.

The rise in domestic sales in Transport & Storage underpinned strong profit growth in the year to Q2 2024. The sector recorded the highest profit expansion of any sector with growth of 6.2%, over double the historical sector average (2.8%). Companies expect profit growth to match that pace in the year ahead, while all other sectors are also expecting further uplifts compared to the previous year. Linked with strong domestic sales growth expectations, the IT & Communications sector is predicting the sharpest rise in profits over the next 12 months at 7.4%, significantly above its 4.2% historical average. Energy, Water & Mining (6.6%), and Construction (6.1%) are also expecting elevated profits growth over the coming year.

Recent increases in wholesale energy prices have led to increased input cost inflation for the Energy, Water & Mining sector, which saw prices rise by 4.9% in the year to Q2 2024. However, with CPI inflation returning to the targeted 2% in May, companies across all sectors are confident that input cost inflation will ease over the coming year, with Retail & Wholesale expecting the smallest increase of just 1.8%, dropping under the historical average of 2.6% for the sector. This moderation of input cost growth is expected to feed into selling prices for most sectors, however, the Energy, Water & Mining sector anticipates a modest uplift in price inflation over the next 12 months.

• Business confidence was positive for all UK nations and regions for the second consecutive quarter in Q2 2024.
• The East of England had the highest confidence, followed by the South East, while sentiment declined in the North West, Yorkshire & Humber and Wales.

Confidence remained positive for all regions and nations in Q2 2024, however there has been significant movement compared to the previous quarter. Companies in the East of England are now the most optimistic about the year ahead, with a score of +22.4. Strong export growth, both in the 12 months to Q2 2024 and anticipated in the coming year, have likely bolstered confidence in the region.

In contrast, the North West, Yorkshire & Humber and Wales all recorded significant contractions in confidence compared to Q1 2024, with Wales now the most pessimistic area of the UK. Companies in Wales seem to be struggling with a number of rising challenges compared with Q1 2024, including competition in the marketplace, customer demand, availability of non-management skills and the tax burden.

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

• There are only small variations in confidence across company type and size, with large private companies slightly more optimistic than the others.

Business confidence continued to be positive across all company types and sizes in Q2 2024. Large private companies (+18.4) were the most confident, despite a slight drop from the previous quarter. All UK Listed companies (+17.6) followed behind after a more significant drop from Q1 2024.

• GDP grew in the first quarter of the year, confirming that the UK had moved out of a technical recession and the Prime Minister set the date of the general election for 4 July.
• Inflation continued to recede, reaching the 2% target rate in May but the Monetary Policy Committee (MPC) kept interest rates fixed at 5.25% throughout Q2 2024.
• UK economic growth remains fragile with GDP growth faltering in April and labour market conditions continuing to cool.

On 22 May, around halfway through the Q2 BCM survey period, the Prime Minister called a general election for 4 July. His decision to do so appeared to be in part due to more positive news about the UK economy. Quarterly GDP data released on 10 May reported that the UK economy expanded by 0.6% in the first quarter of 2024, officially confirming that the short-lived technical recession at the end of 2023 had passed.

Meanwhile, the rate of inflation continued to fall and in the year to May 2024, prices rose by 2%, reaching the Bank of England’s target for the first time in almost three years, with an August interest rate cut now widely expected. With wages growing more quickly than prices, rising household incomes should support the recovery in consumer spending and retail sales volumes rose by 2.8% in May. Household budgets will also be supported by the 12% reduction in the energy price cap which came into effect in April 2024, with energy prices falling to their lowest level since the conflict in Ukraine began in February 2022.

However, the UK economy remains somewhat fragile. The most recent monthly GDP data published on 12 June suggest momentum stalled in April, with no change recorded from the previous month. The latest ONS assessment of the UK labour market also showed signs that it is cooling with the number of vacancies falling and unemployment rising. Adverse weather may have impacted retail sales and construction activity during the quarter, impacting monthly GDP estimates, but the improvement to the UK economy is proving to be gradual.

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