UK business confidence falls in twelve months as the Autumn Budget approaches
UK business confidence fell sharply, recording its first drop of the year, as concerns grew over Chancellor Rachel Reeves’ upcoming budget.
The latest economic data, as well as insights from the upcoming SME Barometer brought to you by Prism, highlight the growing fear among businesses, and the many daunting financial challenges ahead.
The Institute of Chartered Accountants in England and Wales (ICAEW) reports that business confidence fell to 14.4 in Q3 2024, down from 16.7 in Q2. The decline marks a major shift in sentiment as slowing business growth and a worsening economic outlook begin to take hold. Prime Minister Sir Keir Starmer’s recent warning that the coming budget is “going to be painful” has fueled this concern.
Declining business confidence
The latest Lloyds Bank Business Barometer shows business confidence fell to 47% in September, its lowest level in three months. While companies remain optimistic about their business prospects, there is widespread uneasiness about the broader economic climate. This suggests that while businesses may feel secure about their individual performance, they are losing faith in the UK’s overall economic direction.
Concerns of SMEs before the budget
Prism’s upcoming SME Barometer reveals a worrying outlook for small and medium-sized enterprises (SMEs). The data shows that:
– 75% of SMEs express concern that political uncertainty could have a negative impact on their business.
– 78 per cent are worried about post-budget fiscal challenges, with fears of tax increases leading the way.
The tax burden emerges as a major problem, with 29% of businesses citing it as an important barrier to growth. ICAEW data shows that the most affected sectors include energy, water, and mining (44%), construction (38%), and retail and supermarkets (32%).
Sectoral differences are a concern
The different levels of concern across industries highlight the uneven impact of potential financial measures. Resource-intensive sectors, such as energy and mining, are particularly vulnerable to changes in the tax system due to their high fixed costs and reliance on stable financial conditions. Real estate and retail businesses are also under pressure, as they face rising operating costs due to tax increases or regulatory changes.
A turning point in the UK economy
The decline in business confidence is particularly significant given the relative stability over the past year. The change comes at a critical time for the UK economy, as companies face ongoing challenges such as inflation, labor shortages, and rising energy costs. The approaching Autumn Budget is seen as an important time to restore confidence or destroy it, depending on the measures announced.
