Q1: Sentiment picks up in Q1 2025 after two quarters of decline.
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 10 February to 27 March 2025.
- Confidence in Energy, Water & Mining ticked up in Q1 2025 following falls in the two previous quarters; it remains among the most confident sectors in the UK.
- Businesses reported robust annual domestic sales in Q1 2025, with further expansion expected, while they anticipate disappointing exports growth will improve.
- Both input price inflation and wages growth ticked up in the year to Q1 2025 and was the only sector to report a fall in annual profits, though all three are projected to improve.
- The tax burden was the most widely reported growing issue, while citations of regulatory requirements remain high compared to national and historical averages.
- Strong annual employment growth is expected to continue ahead of the sector's historical average, but the availability of non-management skills is a growing concern.
- Businesses plan to reduce the pace of both capital investment and R&D budget growth to below sector norms.
Business confidence in the Energy, Water & Mining sector
After declining in the two previous quarters, sentiment in the Energy, Water & Mining sector improved marginally in Q1 2025. Businesses in the sector were among the most confident in the UK as the Business Confidence Index rose from +1.7 in the previous quarter to +6.9, significantly above the national average (-3.0). Confidence was only marginally below the sector’s historical average of +7.8.
Above-average domestic sales growth, and the expectation of further expansions that businesses hope will support strong profits growth over the coming year, are likely contributing to improved confidence in the sector. January’s 1.2% uplift in the OFGEM Energy Price Cap provided some scope for energy companies to increase their selling prices, and April’s 6.4% rise will further bolster their outlook for profits growth over the next 12 months. The government also established strategic investment funding in the autumn Budget and published its Clean Power 2030 Action Plan in December to support the transition towards net zero. However, industry bodies also reported a lack of clarity over future energy policy and key investments in the Chancellor’s Spring Statement, which may have impacted capital expenditure plans in the sector.
Domestic and export sales growth
Energy, Water & Mining companies reported annual domestic sales growth of 3.7% in Q1 2025, above the sector’s historical average (2.7%) and marginally outpacing the national average (3.4%). Over the next 12 months, businesses in the sector expect domestic sales growth will climb further, with a projected rise of 4.9% and above the 4.6% rise anticipated economy-wide.
Meanwhile, Energy, Water & Mining companies reported subdued exports growth in the year to Q1 2025. The modest expansion of 0.4% is the joint-lowest of all sectors in the economy, significantly lagging the 2.8% rise recorded nationally. Businesses in the sector anticipate a marked uplift over the coming year, to 2.3%. However, this rise is lower than the sector’s historical average (2.9%) and the national projection of 4.0%. That said, the announcement of US tariffs and the increased uncertainty in the geopolitical environment pose risks to these expectations.
Labour market
Annual employment growth in the Energy, Water & Mining sector was among the largest increases in the UK economy and, at 2.3%, was only behind the Business Services sector (2.4%) and nearly double the national average (1.2%). Companies plan to soften the rate at which they increase their workforce over the next 12 months to 1.8%, but this expansion is still above the sector’s historical average (1.3%) and is marginally above the growth rate projected nationally (1.5%).
As employment levels in the sector rose, businesses are increasingly reporting some of the challenges associated with hiring. The share of companies citing the availability of non-management skills as a rising challenge increased to 23% and exceeded the sector’s historical norm (18%) and the national average (17%). In addition, 14% of companies reported the availability of management skills as a rising challenge, equaling the sector’s historical average and marginally above the UK average (13%).
Energy, Water & Mining companies reported annual wage inflation of 3.9% in Q1 2025 and the strongest uplift among all sectors. However, businesses expect salary growth to soften to 2.5% over the next year, a weaker projection than the 2.9% increase forecasted for the UK and broadly consistent with the sector’s historical average (2.4%).
Selling and input prices, and profits growth
Annual input price inflation in the Energy, Water & Mining sector was reported at 4.4% in Q1 2025, significantly above the national average (3.9%) and only lower than the increase reported in the IT & Communications sector. Businesses anticipate that input price inflation will slow to 3.2% over the coming year, slightly ahead of the UK-wide projection of 3.0%. The expected moderation is not sufficient to bring inflation below the sector’s historical average (2.9%).
Selling prices rose by 1.4% over the year to Q1 2025, likely reflecting the 1.2% increase in the OFGEM energy price cap in January. However, selling price inflation was lower than the sector’s historical average of 2.1%, and only Banking, Finance & Insurance saw weaker growth. April’s 6.4% increase in the Energy Price Cap will provide companies in the sector with the scope to increase their prices at a faster pace over the next 12 months, with the sector anticipating selling prices to rise by 2.6%, a stronger forecast than the expected UK average (2.1%). However, the US tariffs have impacted wholesale energy rates, with prices falling sharply in April, which could lead to a reduction in the Energy Price Cap in July and increasing uncertainty for businesses.
Energy, Water & Mining companies reported that profits declined by 0.1% in the year to Q1 2025 as the effects of sharper input price and wage inflation outweighed stronger sales and selling price growth. No other sector reported annual profits growth decline over the period. However, businesses are optimistic that profits will increase by 5.8% in the next year, above the sector’s historical average (3.0%) and the projected national average (4.7%), with only the IT & Communications sector forecasting stronger profits growth.
Business challenges
The proportion of companies in the Energy, Water & Mining sector citing the tax burden as a rising challenge rose to a survey-historical high of 55% in Q1 2025, following November’s increase in the Energy Profits Levy and the tax rises announced in the autumn Budget. As a highly regulated sector, concerns about regulations are a frequently reported issue, and 45% of businesses cited them as a mounting challenge in this quarter, higher than both the sector historical norm (42%) and the national average (43%).
Meanwhile, 30% of businesses reported expanding into a new area as a growing challenge in Q1 2025, making the issue more commonly cited than in any other sector. This is much higher than the historical average for the sector (14%) and could be related to a perceived lack of clarity on future energy policy and future investment in the Spring Statement.
Competition in the marketplace (28%) and customer demand (26%) also remain prominent concerns in the industry but are below their respective historical averages in Q1 2025.
Investment
At 3.1%, the Energy, Water & Mining sector reported higher annual capital investment growth than the national average (2.6%). However, businesses plan to reduce capital expenditure growth over the next 12 months to 2.2% and, while this is stronger than most sectors, it is lower than the sector’s historical average (3.0%) and may reflect business uncertainty about future UK energy policy.
Annual R&D budget growth was reported at just 0.8% in the year to Q1 2025, a more sluggish increase than both the national average (1.5%) and the sector historical norm (1.8%). Companies expect that R&D budget growth will ease further over the year ahead to 0.5%, a weaker forecast than the 1.5% uplift expected for the UK on average, and only businesses in Retail & Wholesale anticipate slower growth.