Sentiment in Q3 stood at -7.3 on ICAEW’s Business Confidence Monitor (BCM) quarterly index, down from -4.2 in the previous quarter. Confidence is now at its weakest level since Q4 2022, having fallen for five consecutive quarters. 

This drop in confidence was likely driven by record high tax concerns squeezing profits growth, recruitment and investment activity. Muted domestic sales growth also weighed on sentiment, as firms continue to lower their expectations for the year ahead, the Institute said.

Six in 10 (60%) businesses said the tax burden was a growing challenge, a historic high for the survey and a ten-fold rise over the past five years, from just 6% in Q3 2020. It was also the third time since Q4 2024 that the proportion of firms citing concerns over tax broke the survey record. ICAEW said members were both negatively impacted by April’s rise in national insurance and worried over potential tax hikes in next month’s Budget.

Despite government plans to reduce this burden, regulatory requirements are the second biggest challenge to performance, with 47% of companies citing this as an issue, the highest proportion since Q4 2018. 

Confidence among non-exporters was particularly downbeat, plummeting from -4.5 to -10.0. This indicates that domestic challenges, notably higher taxes, are currently weighing more heavily on businesses than wider global volatility. Exporters were less downbeat at -5.5.

By sector, sentiment was most negative among property businesses (-23.2), amid a challenging housing market and weak commercial demand. They were followed by retail and wholesale (-11.4) firms, likely reflecting its greater exposure to the national insurance increase. In contrast, sentiment rebounded strongly within industrial production (-10.1 in Q2 to +4.4 in Q3), possibly due to less volatility in global trading conditions.

Alan Vallance, ICAEW Chief Executive, said:

“It’s Groundhog Day for Britain’s businesses as we enter another run up to a Budget with poor growth, strained public finances and a fear that business will once again bear the brunt of higher taxes. Confidence has collapsed, uncertainty remains, and the tax burden has hit another record high. All in all, the findings make for very grim reading.

“Economic growth will require the country’s businesses to be confident, to innovate and to invest. But concerns over further tax rises next month – which appear inevitable – are quashing any sparks of risk-taking or ambition. If the government is to come good on its growth mission it must demonstrate that it is firmly on the side of business by cultivating the conditions in which they can thrive, beginning with a cast iron commitment not to increase business taxes in this parliament. If it fails to do that, Britain risks sleepwalking into stagnation.”

Suren Thiru, ICAEW Economics Director, said:

“Our latest survey points to another chastening quarter for businesses as confidence continues to crumble under the weight of a floundering economy, deteriorating profit margins and unprecedented turmoil over tax.

“These figures suggest that firms are making the arduous adjustment to materially higher employment costs by seeking savings through curtailing hiring, limiting staff training and curbing investment plans, impeding key levers of growth and productivity.

“The mounting squeeze from plummeting confidence and a weakening outlook for domestic sales and employment means the economy will struggle to deliver the uplift in growth needed to avoid more painful decisions at the Budget.”

Profits growth and investment activity tumble

Annual profits growth slowed to 2.3% in Q3, the lowest since Q4 2023, amid stagnant domestic sales growth, softening export growth and rising business costs. Growth expectations (4.1%) for the year ahead dropped to a two-and-a-half year low.

Growth in capital investment declined from 2.3% in Q2 to 1.8% in Q3, the weakest since Q4 2023, likely reflecting higher business costs and heightened uncertainty. Firms plan to slow the rate at which they increase their expenditure over the coming year.

UK labour market conditions weaken

Employment growth dropped from 1.4% in Q2 to 0.9% in Q3, the lowest point for four years, while expectations for employment growth in the year ahead (1.2%) at its lowest level for five years. Retail and wholesale is the only sector expected to see employment drop over the next year.

This expected slowdown in employment growth was likely driven by firms’ response to April’s significant increase in employment costs, including the national insurance rise, ICAEW said. This is also likely the main reason why growth in staff training budgets have fallen to their lowest since Q3 2021.

Sales activity remains subdued

Domestic sales growth remained at 3.0% in Q3, while expectations for sales growth for the year ahead dropped to their lowest point for five years, possibly due to weaker economic conditions.

Export sales growth slowed to 2.4% in Q3, the lowest since Q4 2023, amid the impact of US tariffs. Expectations for export sales growth for the year ahead increased slightly. 

ENDS

Notes to editors: 

The full report is available on request.

1. The Business Confidence Monitor (BCM), which is one of the largest and most comprehensive quarterly surveys of UK business activity, began in 2004. 
2. 1,000 Chartered Accountants based in the UK responded to a telephone survey between 14 July and 24 September 2025. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions. 
3. Negative confidence scores have typically corresponded with particularly tough times for the UK economy, including the significant inflation shock in 2022 following Russia’s invasion of Ukraine.

Business Confidence Index methodology - The Business Confidence Index is calculated from the responses to the following:

“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”  
A score was applied to each response as shown below, and an average score calculated:

Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.

As one of the largest and most comprehensive quarterly surveys of UK business activity. BCM is closely watched and referenced by key policymakers, including HM Treasury, the Bank of England (including being referenced in their Monetary Policy Report), British Business Bank and the Small Business Commissioner.