Rachel Reeves starts the week facing further pressure after a gloomy warning from some of Britain’s top executives.
A survey of UK chief financial officers (CFOs) by consultancy Deloitte found a net 26% felt more pessimistic about their businesses than they did three months ago.
The figure, based on a quarterly survey carried out in December, is the first time CFOs have felt more pessimistic than optimistic since June 2023, just before the UK slipped into recession.
But sentiment is still well above the lows seen during the Covid-19 pandemic and in 2022 during Liz Truss’s brief premiership.
Ian Stewart, Deloitte’s chief economist, said: “With cost control to the fore in the wake of the Budget, CFOs have trimmed expectations for corporate investment, discretionary spending and hiring in the next 12 months.”
The Deloitte survey found cutting costs was the top priority for CFOs after increases to national insurance, as it has been for almost three years, while expectations about increases in hiring fell to a four-year low.
The pessimism about costs and hiring is a particular problem for a Government that has pledged to improve disposable income and increase employment.
But the survey was not universally negative, with Mr Stewart saying businesses still expected to see growth “picking up over the summer” and exceeding 2024’s figure and the performance of the eurozone on the back of “easy fiscal policy and interest rate reductions”.
Inflation concerns appear to have faded, and the UK remains more attractive to investors than Europe, though less so than the US.
Mr Stewart added: “2025 seems to be a year of continued if modest UK growth. Looking ahead, a continued emphasis on policies to unlock the UK’s potential remain key to shifting the trajectory of activity.”
Wes Streeting acknowledged Rachel Reeves was under ‘pressure’ but said he had ‘total confidence’ in her (Leon Neal/PA)
Despite some positive notes, the CFO survey represents a further blow to the Chancellor after a week that saw the cost of government borrowing rise amid a global bond sell-off and concerns about the UK’s fiscal position.
Ministers have insisted that the gilt market has operated in an “orderly” fashion, but the rising cost of borrowing threatens to eliminate Ms Reeves’s headroom against her fiscal rules.
With more money being spent on servicing government debt, the Chancellor faces the prospect of increasing taxes or implementing deeper spending cuts than planned if she is to keep to the rules she set herself in October.
During a trip to China over the weekend, Ms Reeves insisted her fiscal rules were “non-negotiable” and said she would “take action” if necessary to ensure they were met.
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The Chancellor’s Cabinet colleagues have sought to defend her, with Health Secretary Wes Streeting urging the public to “give her time”.
While Mr Streeting acknowledged Ms Reeves was under “pressure”, he told the Jewish Labour Movement’s annual conference on Sunday that he had “total confidence” in her handling of the economy.
But Conservative shadow business secretary Andrew Griffith said Monday’s Deloitte survey showed Ms Reeves had “made Britain more vulnerable because of her decisions”.