Confidence down as fears grow

Business confidence fell for the first time in a year as tax fears hit a joint record high ahead of the Autumn Budget, a survey of 1,000 UK business leaders has revealed.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) – one of the largest and most comprehensive quarterly surveys of UK business activity – dropped to 14.4 on the index in Q3, the first decline in 12 months and down on last quarter’s reading of 16.7.

However, business confidence remains strong and is still double the pre-pandemic average, according to the October survey published by the accountants’ professional body.

The fall in confidence was likely driven by mounting concerns over the tax burden and weaker exports growth, ICAEW said, while investment remained low.

The tax burden was cited as a growing challenge by 29 per cent of businesses, a joint record high for the survey and significantly higher than the historic average.

While almost all sectors said they were increasingly troubled by tax challenges, this concern was most prominent among firms in energy, water and mining (44 per cent), property (38 per cent) and retail and wholesale (32 per cent).

Meanwhile, exports growth slowed to 2.7 per cent in Q3, down from three per cent in the previous quarter and the lowest rate since Q4 2023.

This is likely due to concerns over demand in key overseas markets, ICAEW said. In contrast, domestic sales growth reached 3.8 per cent – up from 3.3 per cent in Q2 – the fastest rate for a year.

Businesses in services sectors, as well as construction – buoyed by government announcements about reforms to planning, housebuilding and falling interest rates – were most confident.

However, sentiment in the transport and storage sector slumped, likely due to increased regulatory concerns, including EU border changes, and the weak domestic sales expectations, ICAEW said.

It also fell sharply in energy, water and mining, amid worries over tax after the government announced changes to the energy profits levy and increased regulation to punish water pollution, as well as weak predictions for future export and sales growth.

ICAEW, said that to boost confidence, the government should use the Budget as an opportunity to conduct an urgent review of the UK’s tax system and introduce reforms to stimulate economic growth, build confidence and drive investment.

Suren Thiru, ICAEW economics director, said: “These figures suggest a slight reality check for the UK economy as weaker expected export and investment activity, alongside fears of a painful Budget, dented business confidence despite a boost from stronger domestic sales growth.

“The notable easing across the indicators of selling prices and salary costs provides reassurance that inflationary pressures remain in check and keeps the door open for a November rate cut.

“While our survey indicates that the economy will expand in the third quarter, the pace of growth is likely to be slower compared to recent quarters as the momentum from the large recent falls in inflation fades.”

Alan Vallance, ICAEW chief executive, added: “The findings show that businesses are troubled by the tax burden and increasingly reluctant to invest.

He added: “The chancellor must give companies the certainty and stability they need. Reforms to VAT and business rates, alongside public and private investment to drive long-term growth and prosperity for the UK, could help to achieve this.”