Business confidence sank further in quarter four (Q4) 2025, falling into double-digit negative territory for the first time in three years.

The survey of 1,000 business leaders highlighted fears of an unsustainably high tax burden and expectations of weaker business activity, leaving sentiment at -11.1 on the BCM index – a fall of -3.8 compared to the previous quarter.

Confidence has fallen for six consecutive quarters and now sits at its lowers point since Q4 2022. The index declined to -10.7 pre-Budget, before falling slightly further to -11.1. 

A record 64% of firms said the tax burden was a growing challenge in the quarter (up from 60% in Q3). This is more than double the firms (29%) saying the same since the last General Election in Q3 2024 and an eleven-fold increase from 6% in Q3 2020.

Primarily, this reflects the extended period of speculation over the possible tax changes included in the Autumn Budget, alongside the continued pressure from previous tax hikes.

Alan Vallance, ICAEW Chief Executive, called for new optimism in 2026 to encourage confidence and growth. “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.”

Regulation was cited as the second biggest barrier to performance; 51% of businesses said they were hampered by this issue. The Employment Rights Bill was cited as the major reason for this.

Retail and property struggles, optimism up for exporters and IT

Like in the previous quarter, non-exporters were less confident than exporters. Non-exporting firms’ confidence fell from -10.0 in Q3 to -20.8 in Q4, while exporters offset that by increasing their sentiment, from -5.5 to -2.5. 

As in Q3 2025, property, and retail and wholesale, firms were most negative about business prospects, with sentiment sitting at -23.4 and -16.6 on the index respectively. Construction was third most negative at -16.2, while IT and communications bucked the trend, delivering the only (albeit marginal) positive score of +0.3.

Employment growth slows

Employment growth dropped to 0.8% in Q4 – the lowest point since Q2 2021. Employment growth was the weakest since Q3 2012, discounting the unique circumstances of the pandemic years.

Manufacturing and engineering, retail and wholesale and transport and storage reduced employment in Q4, while the transport and storage sector is the only one expecting a further decline in 2026. Again, this reflects the increased cost of employment, and how businesses are adapting to that. 

Salary growth also slowed to 2.9% year-on-year in Q4, its lowest since Q1 2022, but 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, such as bank charges, late payments, and access to capital, rose collectively for the first time since Q3 2023.

Domestic sales expectations improve 

While domestic sales growth dropped slightly from 3.0% to 2.9% in Q4, expectations for the year ahead went up for the first time since Q3 2024. Export sales growth increased to 2.5% in Q4 and is also expected to improve next year. 

Capital investment growth increased 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. 

“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,” Suren Thiru, ICAEW’s Director, Economies, said. “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. 

Indicators of input costs and selling prices increased, which suggests that elevated inflation remains a live risk, despite the recent slowdown in the headline CPI rate, he added. “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.”