According to its UK Confidence Monitor (BCM), business optimism moved into positive territory during the second quarter of the year to 6.7, from -8.7 in Q1.
While gross domestic product (GDP) is expected to grow at 0.5% during this quarter, input prices have been rising at more than double the pace of last year and businesses have been trying to control costs by rising wage growth to a rate below inflation.
ICAEW said that, with the general election on 8 June as well as the upcoming Brexit negotiations, businesses have put recruitment and wage growth on hold.
As a result, it suggested all party manifestos should spell out how they are going to address the problem of business investment head-on.
Meanwhile, the increase in business confidence during Q2 was more prominent for the business, finance, utility and manufacturing sectors.
ICAEW explained that, with firms expected to pass a portion of rising input costs on to consumers, it was no surprise to see the largest confidence rises in those companies that sit further away from direct contact with consumers.
Stephen Ibbotson, ICAEW director of business, said, “It’s encouraging to see that confidence is starting to rise after a sustained period of decline.
“Yet against this improved sentiment, businesses are not investing in staff and wages and may well be waiting to see what happens in the political arena, particularly in relation to how EU negotiations play out.”
Ibbotson said that rising input costs will see inflation exceed wage growth which, when coupled with businesses passing on cost rises to customers in order to rebalance the books, will hit consumer spending power.
“This will likely force households to tighten their purse strings further in 2017, which could challenge domestic growth driven by spending.
“In order for the UK to become the best place to do business, all parties should spell out how they plan to encourage businesses to invest in long-term growth,” he added.
ICAEW surveyed 1,000 chartered accountants between January and April. They were asked about their confidence in the economic prospects facing their business over the next 12 months, compared to the previous 12 months.