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Business confidence in the UK has more than tripled in Q1 as economic conditions improve, surpassing the pre-pandemic average for the first time in two years, the ICAEW’s Business Monitor has revealed.
However, hesitancy around investment threatens businesses’ recovery, which the ICAEW believes indicates that the economy is “not completely out of the woods yet”.
The quarterly study, which surveys 1,000 chartered accountants across the UK, recorded a confidence level of 14.4 in Q1 2024, up from 4.2 the previous quarter and double the pre-pandemic average of 7.2.
Suren Thiru, economics director at ICAEW, said: “These findings suggest that the economy comfortably exited recession in the first quarter as easing cost pressures and notable improvement across key indicators of business activity drove a robust rebound in overall sentiment.
“This improvement in confidence was encouragingly broad based, with all sectors benefiting from lower inflation and expectations that interest rate cuts are on the horizon.”
He added: “The persistent weakness in investment intentions suggests that underlying economic conditions are still brittle, with weak productivity and persistent supply side constraints likely to continue limiting our economy’s ability to grow.”
Despite improved confidence, businesses saw a modest rise in capital investment in Q1 2024, up to 2.3% from 1.6% in Q4 2023.
However, companies plan to increase investment by just 1.6% over the next 12 months, below the historical average of 2%.
Capital investment spending growth was strongest in the manufacturing and engineering sector in Q1 2024 at 3.5%. This was followed closely by the highly regulated energy, water and mining sector at 3.3%.
The survey showed that 41% of companies were more worried about rules and regulations, the highest level in almost four years.
Meanwhile, just 13% of businesses said bank charges – including interest rates – were a growing challenge in Q1. This was the lowest since Q2 2022 and down from 19% in the previous quarter.
