Business confidence slumps, finds ICAEW survey

ICAEW business confidence survey headlines

• Business confidence falls for the fourth consecutive quarter to -4.2. 
• The tax burden is the biggest concern for 55% of businesses surveyed. 
• Domestic growth has fallen from 3.4% to 3.0% over the last quarter. 
• Businesses are predicting further falls for the rest of the year. 
• Export sales growth stands at 2.8%, still below its historical average of 3.0%. 
• Manufacturing businesses remain the least confident, with confidence falling to -14 from -11.1 in Q1 of the year. 
• Business services fell into negative territory (-5.5) for the first time since 2023. 
• IT & communications (+8.4) and construction (+4.7) businesses are most confident, although confidence has also declined since the previous quarter.

The Institute of  Chartered Accountants in England and Wales (ICAEW) has published its latest quarterly business confidence survey, and it makes for uncomfortable reading.

Business confidence, already at its lowest for three years, has collapsed further, leading the ICAEW to call on the Government to take action in its Autumn Budget.

An ever-increasing tax burden on businesses, weakening economic conditions and mounting global volatility have dragged business confidence down from -3.0 to -4.2 – the fourth consecutive fall and the lowest since 2022.

Plummeting confidence is, says Alan Vallance, the ICAEW’s Chief Executive, a “stark reminder of the perilous situation facing businesses as they continue to grapple with major tax worries at home and an increasingly bleak global picture”. He warns that together, it has “made life especially difficult for businesses across the country”.

Businesses are the engines of the UK economy, yet “without an environment that allows them to thrive… economic prosperity will remain a pipe dream,” he adds.

UK exporters are more pessimistic than non-exporters, with confidence falling to -6.1. It is the first time in three years that it has fallen into negative territory, associated with concerns around the US tariffs and increased tensions in the Middle East.

Taxes and tariffs

As first flagged in April’s ICAEW confidence The Institute of Chartered Accountants in England and Wales (ICAEW), taxes and tariffs are again cited as the biggest obstacle to growth. Over half (55%) of businesses point towards taxes as their primary concern, a significant increase on the three-year average of just 18% and a sixfold increase from 2021.

The increase to employers’ NICs in April, and with the threat of more to come, is making businesses particularly cautious and holding back recruitment decisions.

Customer demand is also a growing concern for 42% of businesses surveyed by the ICAEW. It was swiftly followed by data published by the government that showed the UK economy unexpectedly contracting by 0.1% in May and inflation unexpectedly jumping to 3.6% in June.

Whilst the Chancellor of the Exchequer’s annual Mansion House speech did not announce any major reforms, news from the UK Stock Exchange will have provided some relief, topping the 9,000 point barrier for the first time as global investors diversify.

How should businesses respond?

Whilst businesses will want a stable and predictable economic and tax landscape, they know that as political tides ebb and flow, they too must adapt. Successful businesses also recognise the fundamental changes facing society and adapt to them.

The challenge facing many business leaders today is to question whether, or how, their business needs to adapt. It is a hard question to ask, and perhaps harder to recognise that change is needed in the first place.

For many business leaders, doing what they have always done is no longer an option.

Businesses may be tempted to delay or scale back growth and investment plans to maintain profitability. We believe that could be a mistake. Short-term profitability gains are unlikely to build the firm foundations needed for future growth.

The answer for many businesses may not simply be to add new ways of delivering the same products or services, or to look for further cost savings, but to reimagine or radically change what is currently done and the way they operate.

Businesses should review systems and processes which may involve cutting, adapting or automating to create efficiencies. Alongside that, it’s recommended that businesses review development and upskilling needs of their people, ensuring they are focused on the needs of their customers and clients who will demand more, as well as colleagues.

It is also likely that the next generation of business leaders will expect a better work-life balance and more from the organisations in which they work. Those businesses that struggle or fail to provide that will lose talent to those that can. The reimagining of the way a business operates needs to be balanced with a strong sense of purpose.

For most businesses, this will be a gradual journey of many small steps. And like any journey, it is incumbent on businesses to understand their destination and have a clear plan on how it can be achieved.

Recommendations for government 

With the Autumn Budget on the horizon, it is important that government hears the voice of businesses. ICAEW’s recommendations for government are outlined here.

How we can help

We support many businesses in navigating changes and transformations. If you are looking for support or guidance in this area, please do not hesitate to The Institute of Chartered Accountants in England and Wales (ICAEW). You can also read the ICAEW’s business confidence monitor – The Institute of Chartered Accountants in England and Wales (ICAEW).