Sentiment in Q4 2025 stood at -11.1 on ICAEW’s Business Confidence Monitor (BCM) index, its lowest point since Q4 2022, having dropped from -7.3 in the previous quarter. Confidence has now fallen for six quarters in a row.  

Confidence generally weakened across the fourth quarter with the index declining to -10.7 pre-Budget, before falling slightly further in its aftermath to -11.1 by the end of the fieldwork period.    

A record 64% of firms said the tax burden was a growing challenge in the quarter (up from 60% in Q3), more than double the proportion (29%) since the last General Election in Q3 2024 and an eleven-fold increase from a reading of just 6% in Q3 2020. This mostly reflects both the impact of pre-Budget speculation and continued financial squeeze from recent tax hikes, including higher national insurance.    

Regulation is the second biggest barrier to performance, with half of businesses (51%) hampered by this issue, the highest proportion for more than seven years. ICAEW said this increase is partly a reflection of concerns over the impact of the Employment Rights Bill. 

Business confidence among non-exporters was especially downbeat, dropping dramatically from -10.0 in Q3 to -20.8 in Q4, while among exporters sentiment rose from -5.5 to -2.5. This likely reflected that domestic challenges, such as higher taxes, are more negatively impacting businesses than wider global volatility, the Institute said.

Sentiment weakened across six of the nine economic sectors surveyed and was most negative among property businesses (-23.4). This was followed by retail and wholesale (-16.6) and construction firms (-16.2). In contrast, only the IT and communications sector (+0.3) registered a positive confidence score. 

Alan Vallance, ICAEW Chief Executive, said:

“While 2025 ended with another depressing decline in confidence, a new year calls for a new optimism.

“In 2026, it is incumbent on government to deliver the conditions businesses need for growth. There are amazing businesses across the UK with huge potential to grow if complexity, cost and uncertainty are reduced.

"As long as these burdens remain, achieving the government's growth mission will remain out of reach.”

Suren Thiru, ICAEW Economics Director, said:

“These findings suggest that the economic mood darkened considerably at the end of last year as a triple whammy of soaring costs, a crushing tax burden and slowing sales drove another disheartening drop in overall sentiment. 

“The jobs market is bearing the brunt of these headwinds with our data indicating that companies are increasingly reacting to weaker sales and increasing costs by cutting hiring and curbing other employment related expenses, notably staff training. 

“The uptick in indicators of input costs and selling prices suggests that elevated inflation remains a live risk, despite the recent slowdown in the headline CPI rate. 

“Though the UK economy has entered 2026 in bad shape, the improvement in the forward-looking indicators of sales activity provides a silver lining as it offers hope of a modest economic improvement in the coming months.” 

Labour market conditions deteriorate further 

Employment growth dropped marginally to 0.8% in Q4, the lowest point since Q2 2021. Outside of the pandemic period, employment growth was the weakest since Q3 2012. 

Three sectors – manufacturing and engineering, retail and wholesale and transport and storage – reported a decline in employment in Q4 2025. Transport and storage is the only sector expecting a further decline in the coming year. 

This slowdown was likely driven by firms’ response to the recent significant increase in employment costs. These factors may also explain why growth in staff training budgets fell to their lowest rate since Q3 2020. 

Domestic sales expectations improve, despite weaker Q4 growth

Domestic sales growth softened slightly from 3.0% to 2.9% in Q4, the weakest point since Q2 2021. However, expectations for the year ahead ticked up for the first time since Q3 2024. Export sales growth, meanwhile, increased to 2.5% in Q4 and are also expected to improve next year.  

Capital investment growth rose to 2% in Q4 from 1.8% in Q3, but companies plan to slow the rate at which they increase their expenditure over the coming year to a near two-year low.  

Pricing pressures persist

Selling price inflation increased to 2.3% in Q4 from 2.2% in Q3, with pricing expectations for the next 12 months increasing for the first time since Q4 2023. This increase largely reflects higher input cost inflation, with businesses raising their cost expectations for the year ahead for the second consecutive quarter.  

Salary growth slowed to 2.9% year-on-year in Q4, the lowest rate since Q1 2022, though still above the pre-pandemic average. Wage growth is expected to continue at a similar pace over the next 12 months. 

Worries over financial related challenges – bank charges, late payments, access to capital –all collectively ticked up for the first time since Q3 2023. 

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 8 October and 11 December 2025 – before and after the budget. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions.  
3. Double-digit 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.