Q4: Sharp fall in business sentiment in the South East in Q4 2024.
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.
- Business confidence contracted significantly in the South East in Q4 2024, dropping below both the historical and national averages and into negative territory.
- Annual domestic sales growth slowed, while exports growth picked up from the previous quarter but businesses in the region expect uplifts in both types of sales over the coming year.
- Companies reported one of the lowest increases in input costs in Q4 2024, but inflation remained above the regional historical average. Easing inflationary pressures alongside improved export sales translated into a marginal uptick in profits growth.
- Concern over the tax burden spiked from the previous quarter following the tax rises announced in the Budget but regulatory requirements remain the most prevalent growing challenge faced by companies in the South East.
- Businesses plan to moderate both their capital investment and R&D budget growth, with the South East set to marginally lag behind the respective increases projected nationally.
Business confidence in the South East
Business sentiment in the South East declined significantly in Q4 2024. After climbing in four previous consecutive quarters, the Business Confidence Index contracted from +22.9 in Q3 2024 and slipped into negative territory at -4.3 in Q4 2024. The region dropped below both its historical average (+5.5) and the national average (+0.2), with the index at its lowest level since Q4 2022. The increased pessimism is likely a result of the significant decline in confidence in the locally important Business Services sector alongside increased concerns over potential tax challenges following the Autumn Budget.
Domestic sales and exports growth
Companies in the South East reported that annual domestic sales growth softened from 3.4% in Q3 2024 to 2.7% in Q4 2024, and slipped below the historical average and national average (both 3.2%). While businesses in the region expect an uptick in sales growth over the next year, the 4.5% anticipated increase is among the weakest projected rates in the UK, and lower than the 4.9% forecast UK-wide, with the lower expectations among Retailers & Wholesalers and businesses in the Transport & Storage sector in the region likely weighing on the overall outlook.
Annual export growth picked up in Q4 2024, rising from 3.5% reported in the previous quarter to 4.1%. This increase was among the strongest in the UK, significantly outpacing both the historical (3.2%) and national averages (2.8%). Companies in the region anticipate further improvement over the year ahead, with the projected growth of 4.8% only less optimistic than businesses in Scotland. This increased optimism could be linked to the region’s comparatively large dependence on the Business Services and Retail & Wholesale sectors, which both anticipate relatively strong exports growth over the next 12 months.
Input and selling prices, and profits growth
After a modest uplift in the previous quarter, annual input price inflation returned to its downward trajectory in Q4 2024, as growth eased to 3.4%. This increase was the smallest rise since Q3 2021 and was below the national average (3.7%) and most regions apart from the West Midlands (3.2%). Companies in the region expect input price growth will continue to soften over the next 12 months, dropping below the historical average (2.6%), to 2.4%.
Businesses in the South East reduced the rate at which they increased their selling prices for the second consecutive quarter in Q4 2024, lifting their prices by just 2.2%, and at a slower pace than the national average (2.5%). Over the coming year, companies plan to moderate selling price inflation slightly further to 2.0%. While this projected increase is above the region’s historical average (1.3%), only businesses in the North East expect a lower increase.
Improved exports growth alongside easing input cost inflation appears to have facilitated a marginal uplift in profits growth in the region, to 3.1%. However, this growth was still marginally below both the national and historical average (both 3.3%). Companies in the region anticipate a marked improvement in profits growth in the coming year to 4.9%, rising above the regional historical average, however, growth in the region is expected to lag behind the national average (5.0%).
Labour market
Employment growth in the South East continued to slow in Q4 2024, as the annual growth rate slipped to 1.2% year-on-year and just below the historical average (1.3%). The annual increase was the region’s lowest rise in over three years and was notably lower than the 1.7% growth recorded nationally. Alongside weakening domestic sales, this relatively sluggish growth could be explained by the uptick in labour market challenges cited in the region, as the number of companies reporting the availability of management skills (16%) and non-management skills (23%) both rose for the second quarter in a row and were more prominent than the national average. Looking ahead, businesses in the region plan to lift the rate at which they grow their workforces in the year ahead to 1.9%, matching the increase projected nationally.
Meanwhile, slower employment growth in the South East appears to have translated to wage inflation, which rose at the joint-lowest rate in the UK in Q4 2024, at just 2.9%. Companies in the region expect wage inflation will continue to slow to 2.6%, again lower than almost all other regions but above the regional historical average (2.1%).
Business challenges
Regulatory requirements continue to be the primary growing challenge faced by businesses in the South East, with 41% of companies in the region citing these issues in Q4 2024. This share is broadly consistent with the historical average (39%) and the proportion recorded nationally (40%). However, like in almost all regions, the tax rises announced in the Autumn Budget fuelled increased concern about the tax burden, as the proportion of companies citing the issue as a growing challenge spiked to 37% in Q4 2024, a survey high and over double the regional historical average (17%).
Consistent with the weaker domestic sales growth reported this quarter in the South East, a growing proportion of businesses cited increased concern over customer demand. The share of companies reporting these concerns increased to 36% this quarter, compared to 33% of businesses reporting the issue nationally.
Investment
Following a significant decline in the previous quarter, businesses in the South East lifted the rate of capital investment growth slightly to 2.5% in Q4 2024, widening the gap to the 2.0% historical average. Businesses plan to moderate their capital expenditure growth to just 1.4% over the next year, one of the weakest rates expected in the UK, with only businesses in Yorkshire & Humberside and Wales projecting lower increases.
At the same time, R&D budget growth increased to 1.8% in Q4 2024, marginally ahead of the national average (1.6%) and just short of the regional historical average of 1.9%. However, like most other regions, companies in the South East plan to slow growth in R&D budgets in the year ahead, to 1.3%, marginally below the 1.4% growth expected UK-wide.