Business confidence hit a three-year low in Q3 2025, as higher employment costs and fears over further tax rises caused businesses to hold back and prepare for the worst. Of those surveyed for ICAEW’s Business Confidence Monitor (BCM), 60% of businesses said that the tax burden was a significant challenge.

Alongside tax worries, the regulatory environment, volatile geopolitics and cyber security ranked among the biggest concerns for businesses. The negative impacts were felt the most domestically, with sentiment among non-exporters falling to -10, while exporters bottomed out at -5.5, indicating that domestic policy and trading conditions were the biggest issues for businesses.

The property and retail sectors have been hit hardest by these factors and were the most negative about their ongoing prospects. However, the UK’s industrial sector was most positive as global trading conditions became less volatile. For this Member Insights, members in manufacturing gave their views on the current trading conditions, and their hopes and fears for the months ahead.

A mixed bag

Members in manufacturing expressed mixed feelings about the state of the economy. Overall, the sentiment was quite negative, reflecting the results of the BCM. “It’s all very depressing, I just want to retire now,” said one member in manufacturing in the Midlands.

However, there were some positive signs, which may have driven the slightly more positive sentiment within the sector. Members reported that commercial construction and defence are performing well. “There is lots of infrastructure investment, I hope that this can pull us up by the bootstraps,” said one member.

General manufacturing feels more precarious, members reported. Concerns about tax increases were at the front of people’s minds. “There isn’t enough fat in the sector to cover any more tax increases from the government,” said a member in manufacturing based in the south west.

With the employers’ national insurance increases now in place and increasing employment costs, members expressed some scepticism about the impact of the Employment Rights Bill. Some expressed the opinion that it would disincentivise worker productivity.

“There are lots of decisions being made on guesses as to what will be in the Budget or [the decisions are] not being made at all,” said another member in manufacturing.

The impact of Jaguar Land Rover

The impacts of the Jaguar Land Rover (JLR) cyber attack has been felt across the West Midlands. Now known as the most expensive cyber attack in history, the ripple effect threatens businesses across the region. This was reflected in the regional BCM figures, where sentiment in the area fell to -18.7.

At the time of the survey, the government hadn’t announced its £1.5bn bailout for the company. But even with that money in place, uncertainty remains. “The gap in cash could cause businesses to collapse ahead of Christmas. Nobody knows what’s happening with the £1.5bn loan from the government; this will add debt to balance sheets and stifle growth moving forward. Banks are looking for personal guarantees in return for finance,” said one Midlands member.

Delayed projects

Projects in manufacturing are being delayed, meaning that wage and energy costs are hitting harder for manufacturers. Margins are under pressure, which is adding to the burden.

Some members saw an increase in activity in September, following the improvements in commercial construction. Businesses have raised prices to offset increased wage costs, but ‘with no pushback from customers’.

However, these positives are not enough to counter the overall negative sentiment, with businesses expressing frustrations about US tariffs and R&D complications, though a member added that R&D was ‘improving’.

Regarding tariffs, a member in London described how steel and aluminium-derived products had been hit particularly hard, and that there was confusion about how tariffs were being calculated. “They are at the whim of individuals at US customs, who may interpret things in different ways.”

AI adoption and skills training

Practice members were asked their views on the impact of AI on their businesses. One practice member expressed concerns that people will use it to increasingly ‘do their own research’, instead of turning to professionals. “Professional services need a shift in mindset in terms of what we provide customers.”

There is some resistance to AI adoption among practice members, linked to concerns about data validity, security, compliance, and cultural hesitancy, particularly in regulated sectors. Gradual adoption, referencing industry trends, and addressing data security, is the likely approach for most members.

Conversely, there is a risk of overuse of AI, which can cause its own issues, especially as many large language models (LLMs) and other forms of generative AI have proved themselves to be inaccurate often enough. Careful verification and clear internal guidelines will be necessary to avoid this. Practice members cited the need to integrate data systems and getting leadership buy-in as major hurdles for adoption.

Practice members report that their AI policies are still in development or are currently insufficient to encourage responsible use. Policies need to be flexible and adaptable due to the pace of change in AI. It requires ongoing risk assessments and tailored policies for different tasks and departments, if AI governance is to be effective.

AI is, however, gradually reducing barriers for trainees to focus on higher-value skills and work, rather than spending their time on admin or technical tasks. That said, there are concerns that AI might be used to get around traditional training and exams.

Soft skills such as professional scepticism and critical thinking are increasing in need, alongside reviewing AI outputs. The focus is shifting away from prompt engineering toward knowledge sharing and collaborative learning as AI technology advances. 

There was some debate over whether AI will reduce staffing needs or enable more proactive, real-time advisory services, with some members advocating for technology as an enabler rather than a threat to jobs.