Business confidence has dropped “dramatically” in nearly every sector following Rachel Reeves’s Budget, a new report shows.
A renowned business activity survey put sentiment at just 0.2 on the index – the weakest reading since Liz Truss’s disastrous mini-budget in 2022.
The “dramatic drop” in confidence was likely driven by record concerns over the impact of new tax burdens and weaker sales growth, the Institute of Chartered Accountants in England and Wales said.
Alan Vallance, ICAEW’s chief executive, said: “It’s little surprise that business confidence has fallen considerably.
“The costs of October’s Budget fell almost solely on business and, as this survey makes clear, our members have expressed concerns about measures that place additional costs on those they support and the wider economy.”
Companies taking part in the ICAEW’s Business Confidence Monitor (BCM) survey also reported that they expect investment growth to slow in the year ahead.
Drops in confidence were recorded in every sector of the economy, with sentiment moving into negative territory in three areas.
Retail and wholesale businesses were hardest hit, marking -6.2 on the index, followed by transport and storage at -0.3 and property at -0.2.
By business size, confidence among small and medium-sized enterprises (SMEs) fell into negative territory for the first time since quarter four (Q4) of 2022, recording a drop from 12.8 to -4.7.
Large companies fared better, with sentiment remaining positive.
The number of businesses reporting the tax burden as a growing challenge hit a record high of 41% in Q4, up from 29% in Q3. This was also the first time that tax worries were the most cited challenge in the BCM’s history.
Concerns were partly reflected in changes to employers’ National Insurance (NI) rates in the Chancellor’s Budget, which ICAEW members said would negatively impact margins.
ICAEW said that the reduction in the NI threshold also came as a particularly unwelcome surprise.
Starting in April, larger businesses will face increased employer National Insurance Contributions (NICs), with thresholds dropping from £9,100 to £5,000 and rates rising from 13.8% to 15%. According to the British Retail Consortium, this change is estimated to cost British retailers £2.33billion a year.
The ICAEW said the Government should prioritise measures to boost business and ensure Britain is the best place to invest and to start, run and grow a business.
Suren Thiru, economics director at ICAEW, said: “Our data suggests that the UK economy endured a rather traumatic end to 2024 as slowing domestic activity and the aftershocks from a difficult budget caused business confidence to nosedive.
“While this significant slide in sentiment was broad-based, retailers suffered a particularly difficult time, reflecting their greater exposure to the impact of October’s budget, including the looming increase in national insurance.”
He added: “The economy is in a challenging period with stagflation a live risk and there is little in our key forward-looking indicators of sales and investment activity to suggest that a meaningful improvement is likely anytime soon.”
The report indicates slowing selling price and wage inflation, which could make it “likely” that the Bank of England will introduce another Base Rate cut in February.
However, Mr Thiru said: “Rising expectations for business costs in the year ahead mean policymakers will remain cautious.”
