Source Credit : Portfolio Prints
In September 2025, business confidence in the United Kingdom plunged to its lowest level since surveys began, reflecting deepening concerns across the corporate sector over rising costs, regulatory uncertainty, and looming tax burdens.
A Bleak Survey Snapshot
- The Institute of Directors (IoD) reported that its Economic Confidence Index fell to –74 in September, down from –61 in August — the lowest score since the index’s inception in July 2016.
- Small and very small enterprises made up much of the sample (588 respondents), underscoring the fragility felt by many of the UK’s smaller firms.
- Alongside this plunge in confidence, IOd’s “cost expectations” measure hit a new high — pushed especially by employment costs and energy prices.
- Investment intentions, hiring plans (headcount expectations), and revenue outlooks all fell further into negative territory.
IoD Economic Confidence Index >
| Month 2025 |
Index Value |
Change vs. Prior Month |
Notes |
| July |
–55 |
— |
Still weak, but not record low |
| August |
–61 |
↓ 6 points |
Steeper pessimism |
| September |
–74 |
↓ 13 points |
Record low since 2016 |
Key Drivers of the Drop
Rising Labour and Regulatory Costs
Many businesses point to sharply higher employment costs — including increased national insurance and minimum wage pressures — as a major drag on optimism. Concerns over forthcoming regulation changes and compliance burdens also weigh heavily on firms’ plans.
Tax Uncertainty
Fears that the government will levy new business or asset taxes in the coming November budget have stoked anxiety. Many business leaders believe they will once again absorb the bulk of tax burden adjustments. The looming specter of a further £ 10–40 billion in tax measures is frequently cited in media commentary.
Inflation, Supply and Energy Pressures
Persistently elevated inflation, supply-chain disruptions, and volatile energy costs add further pressure. Regulatory and external shocks (e.g. global supply constraints) compound the negative sentiment.
Broader Economic Indicators
- The composite PMI (which includes manufacturing and services) slipped below the 50 neutral mark in September (49.7), signaling contraction in overall private-sector activity.
- In the construction sector, activity remained in contraction (46.2) though improving slightly from August.
- Unemployment rose to 4.7%, its highest since 2021, with seven consecutive monthly declines in employee numbers.
These indicators suggest the sentiment collapse is aligning with real pressures in business activity and labour markets.
Key Business Indicators >
| Indicator |
Value |
Trend vs Aug 2025 |
Interpretation |
| IoD Economic Confidence Index |
–74 |
↓ |
Record pessimism |
| Composite PMI (UK) |
49.7 |
↓ (below 50) |
Contraction |
| Construction PMI |
46.2 |
↑ (slight improvement) |
Still contraction |
| Unemployment Rate |
4.7% |
↑ |
Highest since 2021 |
| Cost Expectations (IoD) |
Record High |
↑ |
Driven by wages & energy |
Implications & Risks
Investment Freeze & Growth Drag
A lack of confidence typically discourages capital spending and expansion plans, which may dampen future economic growth projections.
Stifled Hiring
Negative headcount expectations signal firms may shed staff or freeze recruitment, worsening unemployment trends.
Fiscal & Monetary Tightrope
The government faces pressure to raise revenue, but doing so could further undercut confidence. Meanwhile, the Bank of England may hesitate to ease monetary policy if inflation remains sticky.
Confidence Feedback Loop
Low business morale can reinforce lower demand, slower consumer spending, and further economic softening — a self-reinforcing loop difficult to reverse.
Policy Credibility & Messaging
The incoming budget must strike a delicate balance: reassure markets and firms while managing public finances. Many are calling for a “growth-focused” plan that alleviates burdens on business.
Conclusion
The record low in UK business confidence—led by cost pressures, tax uncertainty, and weak demand expectations—paints a grim picture of the economic outlook. With investment, hiring, and growth all under threat, much hinges on how decisively and credibly the government responds in its upcoming budget and how monetary policy adapts in a constrained inflation-sensitive environment.
