The latest national Business Confidence Monitor (BCM) for Q3 2024 shows a slight drop in sentiment. However, confidence remains high as businesses continue to expect sales and profits growth to improve significantly in the year ahead.
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.
- Sentiment dropped to +12.1 in Q3 2024, falling below the UK (+14.4) for the first time in a year.
- Domestic and export sales growth slowed slightly but businesses anticipate stronger performance over the next 12 months.
- However, customer demand is the second-most widely cited business challenge behind concern about the tax burden ahead of the autumn Budget.
- Weaker employment growth in Q3 2024 may be indicative of more difficult conditions for businesses as input price inflation ticked up and profits growth slowed.
- Companies in the region expanded capital investment and had the strongest R&D budget growth in the UK in Q3 2024, but plan to cut growth considerably for both.
Business confidence in the East of England
Business sentiment suffered a setback in Q3 2024 in the East of England, with the Business Confidence Index falling to +12.1, down from +22.4 in the previous quarter when the region recorded the highest score in the UK. In Q3 2024, sentiment in the East of England is trailing the UK average of +14.4, however, it remains ahead of the regional historical average of +4.4. The region appears to have been impacted by the collapse in confidence in the Transport & Storage sector and low levels of sentiment in the Manufacturing & Engineering sectors which are both important locally, countered to a degree by rising optimism in the Construction sector, which is also a significant contributor to economic activity in the region.
Domestic sales and exports growth
Domestic sales growth slowed to 3.4% in Q3 2024, still above the region’s historical average of 3.2%, but slipped below the national average of 3.8%. However, companies expect domestic sales growth to improve in the coming year, rising to 5.3% and above the expected national average of 5.1%, with stronger sales expectations in the Construction sector likely supporting the outlook.
Meanwhile, export growth experienced another slowdown in Q3 2024, growing by 3.0% compared to 4.3% in the previous quarter. Despite the continued easing, the latest export sales growth rate was ahead of the UK average (2.7%) and matched the regional historical average (3.0%). Businesses remain optimistic that exports will improve in the year ahead, with growth expected to reach 4.0% in line with the UK projection. However, while companies remain confident that exports will improve, they are somewhat less optimistic than they were in the previous quarter, no doubt responding to the challenging global trading conditions and shipping delays. Indeed, transport problems, likely linked to activity at the region’s ports, were reported by 19% of businesses in the region, the highest across the UK.
Business challenges
Given weakening domestic sales and export growth, it is understandable that a larger proportion of businesses in the East of England cited customer demand as a growing challenge in Q3 2024. However, the greatest concern for companies was the tax burden, which was at a historical high for the region at 37% and above any other UK region. This could be linked to the presence of Energy, Water & Mining businesses in the region, with the sector reporting tax as a major growing concern following the increase in the Energy Profits Levy, but tax concerns rose across most sectors in the latest quarter ahead of the autumn Budget. Meanwhile, concerns about regulatory challenges remain prominent, reported by 35% of businesses, but are less prevalent than in most other regions outside Scotland and Wales.
Labour market
Employment growth slowed somewhat in Q3 2024 to 1.6%, from 2.4% in the previous quarter. Despite this easing, growth remains marginally ahead of the regional historical average (1.4%). However, businesses expect the slowdown to be temporary and plan to return employment growth to 2.4% in the coming year, above the projected national average (2.1%).
Businesses in the East of England continue to expect pressures from wage inflation to ease in the year ahead. They anticipate that the process will be protracted however, with salary growth projected to slow from 3.4% in Q3 2024 to 3.0% in the year ahead, remaining well above the regional historical average of 2.2%.
A factor feeding into future wage expectations in the region is the availability of non-management skills. The proportion of businesses citing this as a challenge has been on a broadly rising trend over recent quarters, perhaps indicative of underlying skills supply shortages in certain sectors in the region and, at 32% in Q3 2024, it is above the historical average of 19% and behind only the North East (37%).
Input and selling prices, and profits growth
Input price inflation ticked up to 4.6% in Q3 2024 from 3.8% in the previous quarter. As a result, the region recorded the second-fastest rate in the UK, only behind Scotland. However, businesses anticipate that input price inflation will slow over the coming 12 months to 2.6%, dropping below the historical average in the region (2.7%).
Some of the uptick in input price inflation appears to have been passed on to customers in the region, with businesses raising their selling prices at the same rate as the previous quarter at 3.0%. Companies expect to lift their selling prices more slowly in the year ahead, anticipating rises of 2.0%, still ahead of the regional historical average of 1.3% but below the projection for the UK (2.2%).
It appears that higher input price inflation and slower domestic and export sales growth have impacted profits growth in Q3 2024, with the region recording one of the slowest growth rates in the UK, as expansion slowed to 2.0% from 3.5% in Q2 2024. However, businesses in the East of England anticipate profits growth will rise sharply in the coming year to 5.2%, ahead of both the national average (5.1%) and historical average (3.0%).
Investment
Companies in the East of England marginally increased the rate of their capital expenditure growth in Q3 2024, matching the national average (2.4%) but they anticipate a significant slowdown to 0.6% in the next 12 months and below the historical average (2.0%). Meanwhile, the growth in R&D budgets in the region was the highest in the UK in Q3 2024 at 3.0% and significantly above the national average (1.7%). However, this growth is also expected to ease considerably to 1.4% over the next 12 months, dropping below the historical average (2.1%).
