• UK business confidence drops to new three-year low amid tax and trade turmoil
• Exporters’ sentiment into negative territory for first time since 2022
• Government must spare business from additional tax hikes in the Autumn Budget, ICAEW urges

Sky high tax worries, weakening economic conditions and growing global volatility pulled UK business confidence deeper into negative territory in Q2, a survey of business leaders published today (Thursday 10 July) has found.

ICAEW’s Business Confidence Monitor (BCM) for Q2 2025 – one of the largest and most comprehensive surveys of business activity – put confidence at -4.2 on the index, its weakest reading since Q4 2022, and down from -3.0 in the previous quarter. This fourth successive quarterly fall in business confidence was likely driven by historically high tax worries and slower expected domestic and exports sales growth, the Institute added.

Confidence among exporters was particularly downbeat (-6.1), falling into negative territory for the first time in almost three years amid US tariffs and growing geopolitical instability.

Negative confidence scores typically coincide with periods of turbulence for the UK economy, including the significant inflation shock in 2022 following Russia’s invasion of Ukraine, ICAEW said.

The tax burden was cited as a growing challenge by more than half of businesses (55%), close to the previous quarter’s record high (56%) and three times higher than the historic average of 18%. This is also a six-fold increase over the past four years, from a reading of just 9% in Q2 2021.

ICAEW said members were concerned about the rise in employers’ national insurance and were nervous over the possibility of further tax rises in this Autumn’s Budget.

Customer demand was a key growing concern for 42% of companies, the highest proportion since Q4 2020 and up from 35% in Q1.

Tougher economic conditions and weakening customer demand meant that expectations for domestic (4.1%) and export sales (3.5%) growth over the next twelve months declined to five-year lows, the latter likely more subdued due to the growing turbulence in global trading conditions.

The survey also found that confidence declined in nine of the 11 sectors surveyed. Manufacturing and engineering firms were most negative with confidence dropping to -14.0 on the index, followed by retail and wholesale (-11.4). In contrast, confidence rose in two sectors: transport and storage and property.

To prevent the decline in confidence from becoming terminal, the Chancellor must spare business from additional tax hikes in the Autumn Budget, ICAEW urged. It added that to improve certainty, the government must clamp down on damaging speculation in the lead up to the Budget.

Alan Vallance, ICAEW Chief Executive, said:

“This negative confidence reading is another 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. A cocktail of costs, including the national insurance rise and global instability, has made life especially difficult for businesses across the country, particularly exporters.

“Businesses are the cornerstone of growth, but without an environment that allows them to thrive, further pain is inevitable. Unless the Chancellor spares business from additional tax hikes in the Autumn Budget, economic prosperity will remain a pipe dream.

“As we move into the season of Budget speculation, it’s imperative that the government learns from the past year. Constant rumours will only serve to destabilise businesses, so we urge the government to be honest about their plans, to give companies the opportunity to plan ahead and weather the storm.”

Suren Thiru, ICAEW Economics Director, said:

“Our data signals a desperately difficult second quarter for the UK economy as ‘awful April’s’ surge in costs and deepening global turbulence triggered another striking slump in business sentiment.

“These findings suggest that companies are now reacting to April’s eye watering surge in costs by scaling back hiring plans and curtailing other employment related expenses, including pay rewards and staff training.

“The marked softening in expectations of future selling price and salary growth should provide some comfort to rate setters that the current inflation spike will soon fade, increasing the chances of an August interest rate cut.

“The notable weakening in the forward-looking indicators of sales activity and employment points to a painful second half of the year for the UK economy as the multitude of domestic and global headwinds take their toll.”

UK labour market likely to continue cooling

Employment growth expectations for the year ahead dropped to their lowest level for nearly five years, falling to 1.3% in Q2. [4]

Jobs growth in the coming 12 months is expected to be weakest within property, manufacturing and retail and wholesale firms. In contrast, employment growth within IT and communications (2.5%) was more than double the national average. [5]

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. These factors are also likely to explain why growth in staff training budgets in the year ahead (1.3%) is expected to fall to the lowest level since Q3 2020.

Current inflation spike expected to ease

Salary growth eased to 3.0% year-on-year, the lowest rate for four years, but still markedly above the pre-pandemic average of 2.1%. Businesses have revised down their expectations for wage growth in the next 12 months (2.4%) to a four-year low.

While selling price inflation (2.3%) rose for the first time since Q2 2023, businesses expect price growth over the next 12 months (2.0%) to be the slowest since Q3 2021. This likely indicates that concerns over customer demand and a tough economic climate are weighing on firms’ pricing plans. Selling price inflation in the year ahead is expected to be highest among firms in transport and storage firms (2.4%) and lowest for banking, finance and insurance (0.7%).

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 7 April and 27 June 2025. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions.
3. The confidence reading for exporters was last in negative territory (-19.5) in Q4 2022.
4. Employment growth fell to its lowest level since Q3 2020.
5. Employment growth for the year ahead stood at 0.4% in property, 0.4% in retail and wholesale and 0.5% in manufacturing and engineering.

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.