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 latest Business Confidence Monitor (BCM) for Q3 2024 shows a slight drop in sentiment but 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.
- The Retail & Wholesale Business Confidence Index showed improvement in Q3 2024 and moved to its highest point since Q1 2022 but remains behind the national average.
- Domestic sales growth remained stable over the last quarter at 2.8%, lagging the historical average but sales are expected to pick up as household budgets continue to improve.
- Retail & Wholesale reported the lowest rate of input price inflation across all sectors as the rate fell for the second consecutive quarter.
- However, customer demand is now the most cited business challenge, followed by competition in the marketplace.
- Employment growth increased in Q3 2024 to 1.1% but remains weaker than most other sectors amid rising concerns about staff turnover and skills availability.
- Capital investment growth remained steady at 2.0% in the most recent quarter and Retail & Wholesale is forecast to have the fastest capital investment growth of all sectors next year.
Business confidence in the Retail & Wholesale sector
The Business Confidence Index in the Retail & Wholesale sector increased in Q3 2024, to +12.1, up from +7.9 in the previous quarter. Sentiment is at its highest level since Q1 2022 and remains significantly above the historical average for the sector (+0.2). However, it continues to lag behind the national average which edged down to +14.4 in the latest quarter.
The increase in business confidence in Retail & Wholesale is likely linked to improving economic conditions feeding through to the sector. The ONS estimates that retail sales volumes rose by 1.0% in August 2024, following a 0.7% rise in July 2024. Overall, the ONS figures show that there was a 1.2% rise in sales volumes across the three months to August 2024, a period when many retailers reported that poor weather impacted sales of seasonal products, while supermarkets’ reported sales were boosted by major sporting events. The Bank of England continues to report that households’ discretionary spending remains weak, yet one major supermarket chain recently raised its profit forecasts and said that consumers were starting to treat themselves to more expensive goods. However, other retailers have said that consumer sentiment is unlikely to improve until the government sets out its tax and spending plans in the forthcoming autumn Budget.
Consumer demand should grow as real incomes improve. Indeed, input price inflation continued to ease, with Retail & Wholesale experiencing the slowest growth in input prices out of all sectors. The latest CPI data published by the ONS show a slight increase in overall price levels in the most recent months compared to the previous 12 months. However, most of these price increases are concentrated in services rather than goods, with the overall price of goods recording a slight decrease of 0.9% in August 2024 relative to the previous year.
Domestic sales growth and customer demand
Domestic sales growth in Retail & Wholesale remained steady at 2.8% over the last two quarters, lagging both the historical (3.0%) and national averages (3.8%). In fact, the sector recorded the second slowest growth ahead of only the Manufacturing & Engineering sector (1.1%). Despite steady sales performance, customer demand is now the most widespread challenge faced by companies, with around half (51%) of businesses citing the issue. Despite this, domestic sales are expected to pick up over the coming year with growth projected to rise to 3.9%, ahead of the historical average but notably lower than the economy-wide projection (5.1%).
Business challenges
Retail & Wholesalers’ concerns about customer demand are the greatest they have been in the sector since Q4 2020 and are the highest of any sector. Competition in the marketplace is also a significant challenge and was reported by 41% of businesses in Retail & Wholesale. Again, this is a larger proportion of companies than in any other sector, amid the continued growth of online vendors, including retailers based outside of the UK.
The Labour Party manifesto outlined policies to support the Retail & Wholesale sector, including a pledge to replace the business rates system in England with a fairer system, however, the government has yet to outline what the new system will look like. Indeed, ahead of the forthcoming autumn Budget, the tax burden was cited as a growing challenge by 32% of businesses in the sector, close to the survey's historical high of 34% recorded in Q2 2022.
Labour market
Employment growth in Retail & Wholesale increased in Q3 2024 to 1.1%, up from 0.5% recorded in the previous quarter and ahead of its historical average (0.9%). However, growth in the sector remains behind the national average (1.8%) and most other sectors. Business concerns about staff turnover and the availability of non-management skills have both increased in prevalence in Retail & Wholesale in the most recent quarter and are considerably higher than the sector's historical and national averages. However, despite these concerns, businesses plan to increase employment growth next year to 1.6%, closer to the projected national average of 2.1% than achieved in the past year.
Wage inflation has been stubbornly high in the sector, with general inflationary pressure and labour supply issues feeding into salary growth. However, wage growth slowed in the most recent quarter to 3.4%, slightly below the national average (3.6%) and businesses expect salary growth to soften further to 2.7% in the coming year.
Input and selling prices, and profits growth
Input price inflation in the Retail & Wholesale sector slowed to 3.5% in Q3 2024, the lowest growth across all sectors and below the national average (4.2%). Input price inflation has been trending downwards since its historical high in Q3 2023 and this is expected to continue as businesses anticipate the rate will slow further to 1.8% over the next 12 months, dipping below its historical average (2.6%).
The growth in selling prices has been following a similar trend, decreasing from its historical high reached in Q2 2023 to 2.4% in the most recent quarter. This trend is also expected to continue, moving towards its historical average (1.5%), and reaching 1.9% over the coming year.
Despite being a muted quarter for profits growth at 0.6% in the year to Q3 2024, the outlook for the next 12 months is more positive, with profits growth expected to expand by 3.8% as sales pick up and cost inflation and wage pressures stabilise. However, this projected growth rate is among the weakest anticipated increases of all UK sectors, only stronger than the Energy, Water & Mining sector.
Investment
Capital investment growth in the Retail & Wholesale sector held steady at 2.0% in Q3 2024, remaining above the historical average (1.7%) but slightly below the national average (2.4%). Businesses anticipate this will pick up over the next 12 months, increasing to 2.7% which is the strongest projection of all sectors.
R&D budget growth was relatively weak and fell in the most recent quarter to 1.3%, dipping below the historical average (1.4%). The outlook is weaker still, at 0.9% for the coming year, although this sentiment is reflected across the majority of sectors, with seven out of nine planning to decrease R&D budget growth.
