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.
- Confidence edged up again in the South East and remains ahead of most other regions and the national average.
- Both domestic sales and export growth have increased above their respective historical average growth rates, and both are expected to record an even stronger rise over the next 12 months.
- Input price inflation increased in Q3 2024, breaking the recent trend of falling growth in consecutive quarters. Also breaking a trend of decline was profits growth, which recorded a modest rise in the past quarter and businesses expect stronger growth in the coming 12 months.
- Regulatory requirements remain the most widespread challenge for companies in the South East, followed by competition in the marketplace.
- Tax concerns also rose sharply from the previous quarter.
- Businesses plan to maintain current rates of capital investment growth next year but expect further cuts to the increase in R&D budgets.
Business confidence in the South East
Business sentiment in the South East increased for the fourth consecutive quarter in Q3 2024, rising slightly from +21.9 in the previous quarter to +22.9. This Business Confidence Index is now over four times the region’s historical average of +5.7 and second only to Wales this quarter. Optimism in the South East was likely boosted by increases in export and sales growth which supported an uplift in profits growth, and businesses anticipate that sales and profits growth will accelerate over the next 12 months.
Domestic sales and exports growth
Domestic sales growth improved slightly to 3.4% in the South East after an extended period of softening and rose above the historical average of 3.2%. However, this increase was still below the national average growth rate of 3.8%. An uptick in annual domestic sales growth within the Business Services sector is likely a contributor to the improvement within the South East, due to its relatively large concentration of the sector. Looking ahead, companies in the region expect a significant uplift over the next 12 months, with growth of 5.2% projected.
Export growth increased compared to the previous quarter. The region’s growth rate of 3.5% was the joint highest in the past quarter, along with London, and marginally above the regional historical average of 3.2%. Alongside London, companies in the South East predict the joint-highest export growth in the UK, with a 5.4% increase expected over the next 12 months which compares favourably to the 4.0% projected UK-wide.
Input and selling prices, and profits growth
After four consecutive quarters of declining inflation, businesses in the South East reported a marginal increase in input price inflation in Q3 2024, to 4.2%. Prices rose in line with the national average but remained significantly above the region’s historical average (2.6%). Companies in the region are expecting input price growth will ease significantly in the next 12 months to 2.5%, dropping below the historical average.
Selling price inflation continued to slow in Q3 2024, falling for the sixth consecutive quarter to a rate of 2.4%. This rise was slightly below the increase seen nationally (2.6%), however, it remains significantly above the regional historical average growth rate of 1.3%. In the next 12 months, businesses are planning to increase selling prices at a similar rate of 2.3%, marginally above the national average (2.2%).
Businesses in the South East recorded a modest rise in profits in Q3 2024, rising to 2.9% from 2.6% in Q2 2024. This uplift put profit growth in the South East marginally above the national average (2.8%), but still below the historical average of 3.3%. Companies in the region have strong profit growth expectations for the 12 months ahead, anticipating growth of 5.3%.
Labour market
Employment growth eased slightly for the third consecutive quarter, falling to a rate of 1.6% in Q3 2024. This rise was marginally above the historical average of 1.3% but was slightly below the national average of 1.8%. Once again businesses in the South East were less likely to report labour market challenges around skills and staff turnover than in most other regions. However, companies in the region plan to grow staff levels at a slower rate than most other regions, with an expected rise of 1.9% in the coming 12 months, compared to the national average projection of 2.1%.
Meanwhile, salary growth continued on its downward trend in Q3 2024 with growth of 3.3%, marginally below the 3.6% growth recorded in the UK as a whole, but still above the historical average of 2.1%. However, only London and Wales recorded slower wages growth in the past quarter. Salary pressures should continue to ease and companies in the South East expect growth of 3.0% in the coming 12 months, similar to the UK projection of 2.9%.
Business challenges
Regulatory requirements remain the most prevalent challenge for businesses in the South East in Q3 2024, with 38% of companies citing it as a concern. Customer demand (28%) was again one of the most common issues for businesses, although it decreased slightly from the previous quarter. Competition in the marketplace also remains an area of concern in the South East at 33%, marginally above the national average of 32%.
However, common to many regions was the rise in concern about the tax burden as a growing challenge. The South East was no exception, and there was a notable increase in the proportion of businesses citing tax as an issue to 27% in Q3 2024, up from 21% in the previous quarter, slightly below the national average of 29%.
Investment
Growth in capital investment spending decreased compared to the previous quarter, falling to 2.3%, but remained ahead of the historical average of 2.0%. Companies plan to increase capital expenditure at a similar rate of 2.4% over the next 12 months and, with companies in most regions expecting to scale back growth, this will be one of the highest rates in the UK, with only the South West reporting higher growth expectations. Meanwhile, R&D budget growth fell to 1.2% in Q3 2024. This rate is below the historical average of 1.9%, with a further slowdown to 1.0% anticipated in the coming 12 months.
