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 January to 22 March 2024.

• Following a protracted period of weak confidence during 2023, business sentiment rose during the quarter, reflecting improvements in economic indicators, including GDP, retail sales and inflation, and a growing belief that interest rates have peaked.

• Helped by the anticipated slowdown and the moderation already seen in input costs and salary growth, companies foresee the improvement in domestic and export sales feeding through to sustained employment growth.

• Despite improvements in confidence, investment intentions remain weak and are expected to grow below the average for both capital equipment and R&D. Business expect to increase employee numbers by slightly more than their stock of capital equipment, indicating their caution around investment.

• Input and selling price inflation continued to ease, as well as salary growth – though more marginally. Businesses anticipate further softening in the year ahead but still above their historical standards.

• Customer demand and competition in the marketplace remain the top growing challenges together with regulatory requirements – which are predominantly concentrated in Banking, Finance & Insurance and Energy, Water & Mining.

• Unlike in previous quarters, confidence is positive across all sectors and regions & nations for the first time since Q1 2022. Confidence is highest in the Banking, Finance & Insurance sector, while Property and Construction have also seen marked improvements, likely reflecting the anticipation of interest rate cuts by the Bank of England in the near future.

• Business sentiment picked up sharply in the second half of the survey period and, on average, the Business Confidence Index rose to +14.4 from +4.2 in the previous quarter, surpassing the 2010-2019 average of +7.2.

• Domestic sales growth softened further in Q1 2024, however expectations for the year ahead improved slightly. After a slowdown in growth in Q4 2023, export sales growth was healthier in Q1 2024 and is expected to accelerate in the next 12 months.

• Confidence was positive for all sectors, but highest in Banking, Finance & Insurance, likely reflecting the anticipation of interest rate cuts. This is probably also true for Property and Construction which, along with Business Services, were among the most optimistic sectors.

• All sectors anticipate export sales growth to rise, and Energy, Water & Mining and Transport & Storage are the only sectors that expect domestic sales growth to weaken over the next 12 months.

The Business Confidence Index rose above its pre-pandemic average for the first time in two years, rising to +14.4 in Q1 2024. This is the highest sentiment has been since Q1 2022 when the index was at +18.6 but descending from its post-covid highs. The upturn in sentiment at the start of 2024 follows a period of weak yet positive confidence throughout 2023, reflecting the absence of economic growth and high inflation during the year. The weekly survey data suggest that confidence picked up sharply in the second half of the quarter as economic growth returned.

Unlike previous quarters, confidence is positive across all sectors for the first time since Q1 2022, but is highest in Banking, Finance & Insurance, at +21.0. Business Services is next with confidence returning to positive territory in Q1 2024 at +18.7, up from -4.2 in the previous quarter. Sentiment in Property (+17.7) and Construction (+16.2) are at their highest levels since Q4 2021. The Bank of England’s decision to hold interest rates at 5.25% and the expectation that they will start to reduce rates is probably supporting sentiment in Banking, Finance & Insurance, Property and Construction, which are sectors that are relatively sensitive to interest rates.

Improved business confidence is underpinned by expectations that the growth in domestic and export sales will increase over the next 12 months. While domestic sales growth slowed to 3.3% in Q1 2024, from 3.6% in the previous quarter, they are above the historical average of 3%, and businesses anticipate they will increase to 5.2%. Businesses are similarly confident about the growth in export sales, which ticked up from 2.1% in Q4 2023 to 2.8% in Q1 2024, bringing them close to their historical norm. Overall, companies anticipate that export sales growth will hit 4.7% in the year ahead, significantly above the historic average of 3.0%.

Indeed, companies in all sectors expect export sales growth to rise considerably in the year ahead, with the fastest rate anticipated in IT & Communications, a sector which has enjoyed the highest export sales growth in recent quarters. Expectations are similarly strong in Energy, Water & Mining, which experienced much weaker export sales growth at the end of 2023. However, businesses in the sector, alongside those in Transport & Storage, are the only ones anticipating a decline in domestic sales growth over the next 12 months.

• Economic environment during the survey period

• Regulatory requirements remain the top-cited rising issue, but they are predominantly concentrated in the already highly regulated Banking, Finance & Insurance and Energy, Water & Mining sectors.
• Despite expectations that sales will grow, customer demand is the second most widespread growing challenge facing businesses, especially in the Retail & Wholesale and the Transport & Storage sectors.
• Labour market challenges, including staff turnover and availability of non-management skills, eased further in the latest quarter.

Challenges relating to regulatory requirements increased in Q1 2024, with over 40% of businesses citing this as a growing issue. However, high levels of regulatory concern are very sector-specific, with companies in the Banking, Finance & Insurance (60%) and Energy, Water & Mining (55%) sectors most likely to report them as an issue. By comparison, just 23% of IT & Communications businesses report regulatory requirements as a growing challenge.

Despite expectations that domestic and export sales will strengthen considerably in the coming year, customer demand is the next greatest growing challenge that businesses face followed by marketplace competition although, encouragingly, the proportion of businesses citing the issue has fallen in the last two consecutive quarters. With 32% of businesses reporting customer demand as a growing challenge in Q1 2024, it is now below the historical average of 38%. Retail & Wholesale companies are most concerned about the issue at 46% in Q1 2024, which is marginally above the historical average for the sector (44%). A similar proportion of Transport & Storage businesses report customer demand as a growing concern and, at 45% in Q1 2024, it’s the highest proportion in the sector since Q2 2021.

Retailers are the most concerned about competition in the marketplace, which has been steady economy-wide in recent quarters but has been rising in the Retail & Wholesale sector, reaching 37% in Q1 2024 though it is yet to reach its historical sector average of 40%.

A recurring theme during the post-pandemic recovery related to labour market shortages, with the availability of both managerial and non-managerial skills and the turnover of staff reported by businesses as a growing concern reaching historically high levels. The latest survey data shows that labour market pressures appear to have eased further, with the availability of non-management skills and staff turnover falling and the availability of management skills reported by the same proportion of businesses as last quarter. The proportion of businesses reporting each of these issues as a growing concern is now broadly in line with their historical averages and the lowest values since early 2021.

• Input cost inflation continues to slow and is expected to soften further in the year ahead, but not reach historical norms.
• Selling price inflation stabilised and businesses anticipate further moderation over the next year, though the rate of growth will also remain high in historical terms.
• Input costs are expected to fall for all sectors. Equally, selling price inflation is expected to continue to slow for all sectors except Energy, Water & Mining.

Input price inflation softened to 4.7% in the 12 months to Q1 2024. This easing partly reflects the trends seen in global commodity prices, which have largely either decreased or steadied, as well as lower energy costs feeding through to companies. Indeed, the reduction in the energy price cap from April this year will also feed into expectations for the year ahead, with businesses anticipating input prices to grow by 3.0%, which would bring them closer to, but still ahead of, the historical average of 2.6%.

Encouragingly, the softening of input price inflation is very apparent across all sectors. Businesses in Energy, Water & Mining reported the sharpest slowdown in input prices, and the fourth consecutive deceleration. Further easing is expected in the sector, but they will be modest compared to other sectors. All sectors are anticipating the growth in input prices to slow further in the year ahead, with Retail & Wholesale and Construction expecting the smallest rises.

Meanwhile, selling price inflation fell only slightly on the previous quarter and, at 3.2% in the year to Q1 2024, remains considerably above the historical average of 1.3%. However, with input costs set to continue to fall, businesses anticipate further moderation in sales prices to 3.0% over the next 12 months.

At the sectoral level, only Transport and Storage and IT & Communications saw a rise in selling prices in Q1 2024 compared to Q4 2023, although they were only marginal increases. The majority of sectors expect a moderation in selling price growth in the year ahead. However, despite the announcement from OFGEM that the energy price cap will further reduce the typical household bill in April 2024, Energy, Water and Mining is the only sector expecting an uplift in selling prices over the next 12 months, with an expected increase of 2.4% next year from 1.4% in year to Q1 2024.

• Salary growth continued to slow and companies anticipate wage growth will moderate further over the next 12 months but will remain very high by historical standards.
• Employment growth experienced a marginal uplift in Q1 2024, perhaps reflecting improving economic conditions and improved confidence, with similar performance forecast in the next 12 months.
• Companies in most sectors plan to expand their labour force in the year ahead. Business services and IT & Communications and are expecting the strongest employment growth over the next 12 months.

Labour costs remain on an upward trajectory, but the rate of salary growth experienced a marginal slowdown in Q1 2024 to 3.7%, year on year, from 3.9% in the previous quarter. With inflationary pressures continuing to dissipate, businesses anticipate a further marginal slowdown in the rate of growth in the next 12 months to 3.5%. This remains considerably above the historical average of 2.1% and is partly explained by expectations that employment growth will continue in the year ahead.

Indeed, employment growth quickened compared to the previous quarter, achieving an annual growth of 2.0%. This growth exceeded the historical average of 1.3%, perhaps reflecting stronger economic conditions and improved confidence. Energy, Water & Mining experienced the largest percentage rise in employment in the 12 months to Q1 2024, however expectations for growth in this sector are more modest over the next year. Businesses anticipate employment growth will be similar to the current rate in the year ahead. Business services and IT & Communications and are predicting the sharpest increases in employment during this time period.

Most sectors have either seen a drop or stabilisation in salary growth in Q1 2024. However, there was an uptick in Retail & Wholesale, rising to 3.4% from 3.1% in Q4 2023, which is consistent with news that some major retailers recently raised minimum pay for staff as supermarkets battle to retain workers and ahead of the upcoming increase in the National Living Wage in April 2024. The National Living Wage is likely another factor feeding into business expectations that the rate of pay growth will remain well above its historical norm. The outlook for the next 12 months is consistent across most sectors, with Property the only sector that anticipates an uplift in the pace of salary increases over the next 12 months.

• Profits growth picked up slightly but remains below the historical average. However, businesses anticipate a marked rise as input cost inflation becomes more manageable.
• Capital investment and R&D also saw a modest increase. However, despite increased profit and sales growth, companies are not planning to expand their investment in capital equipment in the next 12 months. Only smaller increases are expected in the year ahead, a reflection of ongoing uncertainty and concerns about return on investment, borrowing costs and finance.
• Linked to the high level of regulation in the sector, capital investment spending is strongest in Energy, Water & Mining, and companies anticipate the most notable improvements over the next 12 months.

Profits growth ticked up slightly in Q1 2024 to reach 2.4%, year-on-year, though somewhat below the historical average of 3.1%. Businesses expect that profits growth will rise to 4.6% in the year ahead, supported by strong sales growth and input price inflation falling to a lower and more manageable rate.

Yet with profits expected to rise and despite a distinct lift in confidence about the year ahead, businesses remain downbeat about their investment plans for the coming year. Capital investment saw a modest rise in Q1, rising to 2.3% from 1.6% in the previous quarter. However, companies plan to increase investment by just 1.6% over the next 12 months, below the historical average of 2%. Indeed, business expect to increase employment by slightly more than their stock of capital equipment, indicating their caution around investment and an intention to meet rising demand by employing more people, rather than investing in new machinery and technology. The number of companies with spare capacity also continues to drift up, reaching 49% in Q1 2024, further weakening the incentive to invest.

It is a similar story for R&D, with budgets increasing by 2% in the latest quarter, just above the historical average of 1.9%. However, as with capital investment, businesses anticipate this will fall to just 1.6%.  

Capital investment spending growth was strongest in the Manufacturing & Engineering sector in Q1 2024 at 3.5%, followed closely by the highly regulated Energy, Water & Mining sector at 3.3%, and companies in the sector anticipate a similar rate over the next 12 months ‒ partly driven by the regulatory pressures they face. Their planned rise in capital investment in Energy, Water & Mining to 4.0% in the year ahead would maintain investment above the sector’s historic average of 2.9%. Investment expectations across other sectors are comparatively low, ranging from 0.3% in Retail & Wholesale to 2.1% in IT & Communications.

• The improvement in national business confidence is reflected across all sectors. Confidence is highest in Banking, Finance & Insurance, while Property and Construction have also seen marked improvements, likely reflecting the anticipation of interest rate cuts by the Bank of England in the near future.
• Most sectors foresee improvements in domestic and export sales growth over the next 12 months. Companies in the IT & Communications sector have the strongest expectations. As a result, the anticipation of increased profit growth is evident across all sectors but companies expect a slowdown in capital investment & R&D expenditure growth in the year ahead.
• Across all sectors, companies anticipate a slowdown in both input cost inflation and selling prices to customers as inflation pressures ease.

Confidence is now positive across all sectors in the economy for the first time since Q1 2022. Banking, Finance & Insurance is the most confident sector (+21.0), likely reflecting an expectation that the Bank of England will start to reduce interest rates this year. This anticipation is also to likely underpin the marked improvements in confidence in both Property and Construction, which have seen their indexes rising to +17.7 and +16.2 respectively.

Indeed, the Property and Construction sectors experienced a challenging 2023, with both sectors suffering some of the lowest rates of domestic sales growth in preceding quarters, which was reflected in faltering confidence. However, businesses in both sectors are now optimistic about the year ahead and expect domestic sales growth to accelerate above historic norms, no doubt anticipating that lower interest rates will support the recovery in demand.

Meanwhile, it is notable that the IT & Communications sector has the lowest confidence score in Q1 2024, despite having the strongest expectations for domestic and export sales growth for the year ahead. Prospects for next year come off the back of a strong performance through 2023, and businesses within the sector have the highest expectations in terms of both export and domestic sales growth. Unsurprisingly, these high sales growth predictions for the sector have boosted profit expectations, with businesses in IT & Communications anticipating profits growth of 7.9% in the year ahead. If achieved, this would be close to the historical high for the sector of 8.3%.

Manufacturing & Engineering saw the largest increase in capital investment in Q1 2024 as the sector continues to automate its production processes. Investment growth of 3.5% in the year to Q1 2024 was also significantly higher than the sector average of 1.7%. Like most sectors, despite strong expectations for sales and profits next year, the investment spending plans for Manufacturers over the coming year are weaker at 1.6% and in line with the average.

The advancements in Artificial Intelligence in the past year could help explain why IT & Communications experienced the largest increase in R&D budgets in the last 12 months (3.5%). Businesses in the sector also plan the largest increases over the coming year, at 2.9%. However, despite all sectors expecting improvements in profits, growth in capital investment and R&D will be more modest in the next year compared to last for the majority of sectors. Regulatory requirements underpin investment in the Energy, Water & Mining sector and it is the only sector expected to both maintain its recent growth in R&D budgets and increase capital investment in the year ahead.

All sectors are expecting input cost inflation to slow over the next 12 months. Companies in the Retail & Wholesale and Construction sectors foresee the smallest rises. This slowdown in input price expansion will feed through to selling prices in the majority of sectors. Only businesses in Energy, Water & Mining are anticipating selling price growth to accelerate in the coming year and even then, this increase will be marginal.

• The latest survey shows that business confidence is positive for all UK nations and regions for the first time since Q1 2022.
• Confidence is highest in Yorkshire & Humberside, followed by the North West, while sentiment turned positive in Wales after being the most negative in the previous quarter.

The strong confidence score for Yorkshire & Humberside was likely underpinned by companies within the region experiencing the strongest growth in domestic sales in the past 12 months. These businesses foresee a further pickup next year.

The West Midlands is the only region to have seen confidence fall in Q1 2024 compared to Q4 2023. A number of factors are likely contributing to this reduced confidence, including weaker export growth, rising input inflation and stagnating selling prices. Companies in the region have also reported that the availability of both management and non-management skills alongside regulatory requirements have proved to be greater challenges in the 12 months to Q1 2024.

Further analysis of confidence for each region and nation is available in their respective reports on ICAEW Business Confidence Monitor.

• There are some variations in confidence across company type and size, with UK listed companies and large private companies having the greatest confidence.

Business confidence was again positive across all company types and sizes in Q1 2024. While there have been improvements for each type of company, UK-listed (+20.3) and large private companies (+18.9) were the most confident. Companies listed outside of the UK experienced a more modest increase in confidence compared to the others, rising to +10.3.

• There are several signs that the UK economy returned to growth at the start of 2024, following confirmation that it entered a mild technical recession at the end of 2023.
• GDP grew during the survey period in January and February and retail sales climbed, while inflation continued to fall sharply to reach 3.4% in the year to February 2024, the lowest for nearly two and a half years.
• The Monetary Policy Committee (MPC) kept interest rates fixed at 5.25% throughout Q1 2024.
• The Spring Budget included several measures to support businesses and households, including a further reduction in National Insurance Contributions and a freeze in fuel duty.

The latest news about the UK economy has been more positive, with the most recent monthly GDP data showing that the economy experienced growth at the start of the year, with GDP rising by 0.2% during the survey period in January, and a further 0.1% in February, after a 0.1% decline in December 2023. Quarterly GDP data released on 15 February confirmed that the economy had slipped into a technical recession at the end of 2023, with a 0.3% fall in Q4 2023 following a 0.1% fall in the previous quarter. Overall, the UK economy expanded by just 0.1% in the 2023 calendar year. However, the monthly GDP data, together with news about resurgent retail sales volumes in January (3.4% growth) which were sustained in February, indicate that the economy is likely set on a positive course and the recession should be short lived.

This view is supported by the fact that the rate of inflation fell sharply throughout the survey period, and in the year to February 2024 prices rose by 3.4%, followed by 3.2% in March, the lowest rate of increase for nearly two and a half years. At the same time, the annual growth in average earnings, at 6.1%, continued to rise faster than inflation, supporting household incomes and spending. Household budgets will also be supported by OFGEM’s announcement on 23 February of a further reduction in the energy price cap which will come into effect in April 2024, with energy prices falling to their lowest level since the conflict in Ukraine began in February 2022.

Against the backdrop of falling inflation, the MPC maintained interest rates at 5.25% throughout the first quarter of 2024, with the rate of pay growth continuing to concern. However, at their March meeting there was a change in tone, with the rhetoric regarding rate cuts now a question of ‘when’ rates will fall, rather than ‘if’. Meanwhile, the government delivered their Spring Budget on 6 March, which included several measures to support businesses and households, most notably a further 2p reduction in National Insurance Contributions for employees and a freeze in fuel duty.

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