Business confidence rises to highest level in two years but concerns over costs remain
Another survey showed that business confidence improved in the second quarter of the year as firms hope to benefit from an improving economic picture.
The Institute of Chartered Accountants of England and Wales (ICAEW)’s business confidence monitor increased for the third successive quarter in the three months to June, climbing to 16.7.
This took business confidence to its highest level since the start of 2022. The ICAEW noted that sentiment is now more than double its pre-pandemic average.
The improving picture on business confidence reflected weaker input cost inflation and an improving sales picture, both domestically and abroad.
Businesses saw input cost inflation slow over the past three months for a fourth successive quarter, with firms expecting this trend to continue. This helped selling price inflation to drop to a two-year low in the second quarter.
“These figures suggest that businesses shrugged off any distraction caused by the general election, as lower inflation and stronger expected sales growth drove an encouraging uptick in confidence in the second quarter,” Suren Thiru, ICAEW economics director, said.
The ICAEW’s survey is the second in a week to show that business confidence is rising, following the British Chamber of Commerce’s own report which came out earlier this week.
However, both surveys indicate that improving confidence is not yet translating into higher levels of investment. The ICAEW noted that companies expect to continue to grow their capital investment at around the historical average.
Although input cost inflation has slowed, a separate survey showed that almost half of businesses had faced increasing costs due to April’s near 10 per cent increase in the National Living Wage.
This meant salary growth remained unchanged at 3.7 per cent year-on-year, nearly double the historical average.
“Though weakening pricing expectations among firms confirms that we are in a more subdued inflationary environment, stubbornly high wage costs indicate that the underlying price pressures the Bank of England worries about have yet to be fully quashed,” Thiru said.