Business confidence plunged last quarter at its fastest rate since Russia’s full scale invasion of Ukraine after Rachel Reeves’s Budget loaded huge extra costs on to private sector employers, a new survey reveals today..
Accountancy body the ICAEW said its Business Confidence Monitor (BCM) – one of the largest surveys of business activity – put sentiment at just 0.2 on its index in the fourth quarter, the weakest reading since the same period in 2022. It was down from 14.4 in the previous quarter.
The ICAEW said the dramatic plummet in confidence “was likely driven by record concerns over the impact of the tax burden and weaker domestic sales growth.” Companies also reported that they expect investment growth to slow in the year ahead.
The period covers the build up to the 30 October Budget when the Chancellor repeatedly warned about the £22 billion black hole in the nation’s finances, as well as the two months after the Commons statement, which included hikes in employer National Insurance rates and a lower threshold that will raise £25 billion a year by 2030.
The last time confidence fell more precipitately was in the second quarter of 2022 after the tanks rolled over the border into Ukraine triggering a worldwide energy crisis. In that quarter the confidence index collpased from 18.6 to minus 5.
In the fourth quarter it fell even further to minus 23.4 amid the chaos unleashed by Liz Truss and then Chancellor Kwasi Kwarteng in the mini Budget of September 2022.
In the last quarter 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, standing at at -6.2 on the index, followed by transport and storage at -0.3 and property at -0.2.
Confidence among small and medium-sized enterprises fell into negative territory for the first time since Q4 2022, recording a drop from 12.8 to -4.7. Large companies fared better, with sentiment remaining in positive territory.
The number of businesses reporting the tax burden as a growing challenge hit a record high at 41% in the quarter, up from 29% in Q3 and the first time that tax worries have been the most mentioned challenge in the BCM’s 20 year history.
Concerns were partly a reflection of changes to employers’ national insurance in the Budget, which ICAEW members said would have a negative impact on margins. The reduction in the NI threshold also came as a particularly unwelcome surprise, ICAEW said.
Domestic sales growth slowed to 3.2% in the quarter, the lowest since the third quarter of 2021 and down from 3.8% in the third quarter. Export growth ticked up to 2.8% quarter-on-quarter, but remained below the historic average.
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ICAEW chief executive Alan Vallance, 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.
“We want Britain to be the best place to invest and to start, run and grow a business. To achieve this, it’s vital that the government delivers on its mission to promote economic growth. We hope government will prioritise measures to boost the wider business environment and provide businesses with the clarity and stability they need.”
ICAEW economics director Suren Thiru, 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.
“Though slowing selling price and wage costs make a February rate cut more likely by offering hope that the current upswing in inflation may fade, rising expectations for business costs in the year ahead mean policymakers will remain cautious.
“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 any time soon.”