ICAEW Business Confidence Monitor (BCM): East of England

The latest national Business Confidence Monitor (BCM) for Q4 2024 shows a significant decline in sentiment from the previous quarter, with confidence only just remaining positive, as businesses digest the implications of the proposed tax increases in the Autumn Budget and domestic sales growth eased.

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.

• Sentiment in the East of England fell to +2.5 in Q4 2024, dropping below the region’s historical average (+4.4), but confidence is above the national average (+0.2).
• Both domestic and exports sales growth slowed significantly but businesses anticipate both to improve over the next 12 months.
• The tax burden was the most widely cited growing business challenge in Q4 2024, ahead of competition in the marketplace and regulatory requirements.
• Input inflation and selling price growth both slowed in Q4 2024 and further moderation is expected over the next year.
• Employment growth softened, but businesses plan to grow their workforces at a faster pace in the year ahead.
• Companies in the region expanded their capital investment and R&D budgets broadly in line with the historical norm in Q4 2024 and, while they plan to increase investment growth at a similar rate next year, they expect to ease growth in R&D.

After declining in the previous quarter, business sentiment in the East of England continued to fall in Q4 2024, with the Business Confidence Index dropping from +12.1 to +2.5. While this was above the national average of +0.2, confidence slipped below the region’s historical average of +4.4. Alongside the tax rises announced in the Autumn Budget, the significant decline in confidence in the Manufacturing & Engineering and Construction sectors, which are both important locally, are likely factors behind the ease in sentiment in the region.

Annual domestic sales growth declined for the second quarter in a row in Q4 2024, slipping below the historical average (3.1%) to 1.9%. This rate of growth was the joint-lowest in the UK, alongside the West Midlands. Looking ahead, businesses in the East of England expect domestic sales growth to improve, with an anticipated rise of 4.5% next year. Stronger projections for domestic sales growth within the Business Services and Construction sectors are likely to support the outlook in the region. However, even with the projected uptick in the region, domestic sales growth is forecast to lag the national projection of 4.9%.

Exports followed a similar trajectory to domestic sales, with businesses in the East of England reporting a further slowdown in growth in Q4 2024, to just 1.7%. This was below both the historical norm (3.0%) and the national average this quarter (2.8%). Companies in the region anticipate there will be an uptick in exports growth in the year ahead to 3.6% but, again, this is lower than the increase expected nationally (4.0%).

Following announcements about tax rises in the Autumn Budget, there was a spike in concern among businesses in the region over the tax burden. Indeed, tax issues became the most widespread growing challenge for businesses in the East of England, with 46% of companies citing the tax burden as a rising issue in Q4 2024. This was both a survey-record high for the region and was only below the proportion recorded in Yorkshire & Humberside.

Businesses in the East of England appear more concerned about competition in the marketplace (45%) and customer demand (38%) in Q4 2024 which may help explain the relatively weak domestic sales and exports growth reported. Competition in the marketplace was a more prominent concern in the East of England than in any other region and was reported by the largest share of businesses since Q3 2014. At the same time, concern about regulatory challenges was common, reported by 41% of businesses and was more prevalent here than in all regions other than the East Midlands and the North West.

Companies in the region reported a marked slowdown in employment growth in Q4 2024, dropping below the historical average (1.4%), to 0.8%. However, businesses plan to increase the rate at which they raise their staffing levels in the year ahead, to 2.0%. This expansion is comparable to the national average projection of 1.9% and stronger than the forecast for most regions.

Wage inflation continued to ease in Q4 2024, falling for the third quarter in a row, to 3.0% and businesses expect this rate of salary growth to be broadly maintained in the year ahead, projecting growth of 2.9%. However, this is stronger than projected nationally (2.7%) and above the regional historical average (2.2%). Despite lingering wage pressures, a lower proportion of businesses in the region reported issues with the availability of non-management skills, dropping from 32% to 16%, while reports of the availability of management skills and staff turnover remained below their historical norms.

Annual input price inflation slowed significantly compared to the previous quarter, falling from 4.6% to 3.5% in Q4 2024. While this rise was marginally below the 3.7% increase recorded nationally, input inflation was still significantly above the region’s historical average of 2.7%. Even though companies expect further moderation over the next 12 months, the anticipated growth of 3.0% is higher than the 2.7% rise projected nationally.

Companies in the East of England raised their selling prices by 2.5%, equalling the national average increase. However, this was still significantly above the historical average rate of 1.3%. Despite plans to lift selling prices at a slightly slower pace over the next year, the 2.3% rise projected by businesses in the region is among the strongest forecast in the UK.

Despite the decline in domestic sales and exports growth in the year to Q4 2024, the slowdowns in input price and salary inflation facilitated an uplift in profits growth to 2.6%. However, even with this uplift, the East of England was only ahead of the expansion reported in the South West and was marginally below the regional historical average (3.0%). However, companies in the East of England expect profits growth to accelerate in the year ahead to 5.1%, broadly in line with the projected national average (5.0%).

Businesses in the East of England reduced the rate of their capital investment expansion in Q4 2024, to 1.9%, with growth dipping marginally below the historical average (2.0%) and was among the weakest rates in the UK, only outpacing Wales. Businesses plan to maintain investment growth at the same rate over the next 12 months, marginally above the growth projected nationally (1.8%).

Meanwhile, companies in the region increased their R&D budgets by 2.0% in Q4 2024. While this was a marked decline from the previous quarter, the expansion in the East of England was ahead of the national average (1.6%). However, this growth is anticipated to slow significantly to 0.9% over the next 12 months, which is below the expected national average (1.4%).

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