UK Business Confidence Monitor: National

1. Business confidence dropped for the fifth consecutive quarter, with the Index falling further into negative territory to -7.3 in Q3 2025, amid evidence of sluggish UK economic growth and heightened tax concerns among businesses.
2. Concerns about the tax burden rose to another historical survey high, reported by 60% of all companies, with record highs in most sectors, while regulatory worries were reported by almost half of businesses, itself a near seven-year survey high.
3. Domestic sales growth was muted in Q3 2025 while exports sales growth slowed to the lowest rate since Q4 2023. Annual profits growth also slowed as companies reported a rise in input prices and salary inflation.
4. Businesses reported that employment growth slowed to the lowest rate in four years, while capital investment growth dropped to the slowest rate in two years. The outlook for both remains subdued.
5. Confidence declined in most sectors but was most negative among Property and Retail and Wholesale. In contrast, sentiment rebounded strongly in Energy, Water & Mining.

• The Business Confidence Index fell further into negative territory in Q3 2025, amid record concern about the tax burden and uncertainty about the forthcoming November Budget.
• Exports sales growth dipped, likely a result of US tariffs, while domestic sales growth was flat compared to the previous quarter.
• Sentiment dropped in most sectors in Q3 2025 but plunged in Property which is now the least confident sector. Retail & Wholesale also remains in deep negative territory, while confidence in Energy, Water & Mining rose sharply.

The Business Confidence Index dropped to -7.3 in Q3 2025 from -4.2 in Q2 2025, with sentiment falling for the fifth consecutive quarter. The further drop in confidence coincides with another rise in concern about the tax burden, reaching a new survey record high (60%) ahead of the forthcoming government Budget in November. Confidence is at its lowest level since Q4 2022 and remains well below the historical average (+4.9).

Alongside concerns about the tax burden, domestic sales growth was flat compared to the previous quarter, with businesses reporting growth of 3.0% in Q3 2025, matching the rate in Q2 2025 and remaining below the historical norm (3.1%). Businesses are increasingly concerned about domestic conditions and have been revising down their projections for future domestic sales growth over recent quarters. In Q3 2025, companies projected growth of 4.0% for the year ahead, marginally down from the previous quarter (4.1%) but significantly lower than projections of 5.1% from only a year ago.

Likely as a direct result of US tariffs, exports sales growth slowed to just 2.4% in Q3 2025, the lowest rate reported since Q4 2023 and below the historical average (3.0%). With various trade deals progressing, including with the US and EU, businesses appear a little more optimistic about future exports prospects, predicting growth of 3.6% for the next 12 months, up slightly from the previous projection of 3.5%.

Sentiment fell in most sectors in Q3 2025, but the fall was both the largest and most significant in Property which, with a score of -23.2, is the least confident sector. It is likely that a combination of tax and regulatory concerns, and dampened profits growth following tax rises and a weak housing market are all contributing to the slump in sentiment in the sector. Confidence in Retail & Wholesale (-11.4) also remains in deep negative territory, with the sector facing higher business costs following April’s tax rises, weak consumer confidence and cautious spending.

Energy, Water & Mining (+21.2) is the most confident sector in Q3 2025, following a sharp rise in the index from -2.0 recorded last quarter. Strong export sales growth and greater certainty over future energy policy and investment ‒ with a new commitment to renewable energy projects announced in September ‒ are believed to underpin the relative optimism in the sector. Manufacturing & Engineering is the only other sector to report a rise in confidence in the quarter although, at -3.6, its score remains in negative territory. It is likely that progress on trade deals eased some of the concerns about future exports growth potential, contributing to the improved sentiment in the sector.

Meanwhile, Construction (+1.4) is the only other sector that reported a positive score in Q3 2025, but confidence has been ebbing away over recent quarters and dropped below the sector norm (+3.8) this quarter, amid survey record high concerns about the tax burden and slowing profits growth.

• Concerns about the tax burden rose to another survey record high, reported by 6 out of 10 businesses.
• Regulatory requirements also increased as a growing challenge for businesses and were reported by nearly half of the companies surveyed.
• Challenges relating to customer demand and competition in the marketplace eased.

Concern about the tax burden as a growing challenge rose to another survey record high this quarter, with businesses seeing the impact of April’s tax and National Living Wage rises on their performance. However, it was widely reported during the survey period that the government would likely need to fill a fiscal hole of anywhere between £20bn and £50bn in November, so businesses are also looking ahead to the Autumn Budget and the possibility of further tax rises to come. This may have contributed to the rise in companies reporting the tax burden to 60% in Q3 2025, up from 55% in Q2 2025. Concern rose to record survey highs in most sectors, and were highest in Construction, reported by 73% of businesses, and spiked in Business Services (68%), Retail & Wholesale and Transport & Storage (both 66%).

Concerns about regulations as a growing challenge also rose sharply, reaching 47% of businesses in Q3 2025, the highest proportion reported since Q4 2018. While these challenges remain high in the highly regulated Banking, Finance & Insurance sector (58%), they have been rising in other sectors in recent quarters. For Property (58%), it is now the most widespread concern and well above the sector norm (42%). Regulatory concern among Construction companies (56%) is close to its historical high (57%) as companies report delays related to the Building Safety Act and ongoing planning problems.

Reports of issues relating to customer demand and competition in the marketplace had ticked up in Q2 2025, likely linked to tariffs and wider global uncertainty. These issues, while still prominent, were reported by a smaller proportion of companies in Q3 2025. Customer demand as a growing challenge was cited by 39% of businesses, broadly in line with the historical average (38%), while concern about competition in the marketplace dropped to 33% and below the historical norm (36%). However, the trend varied widely across sectors, and concerns are highest among Retail & Wholesale businesses and rose for both issues, remaining above their respective historical averages. Reports of customer demand as a growing challenge also increased in Business Services, reaching 45%, the highest since Q3 2020.

Other challenges facing businesses, including staff turnover and late payments, were relatively stable compared to the previous quarter, although there was a slight rise in the proportion of businesses reporting the availability of non-management skills as a growing concern to 20% in Q3 2025, up from 15% reported in Q2 2025. Reports of this issue were greatest in the Energy, Water & Mining, Property and Transport & Storage sectors in Q3 2025. However, the issue has generally been on a downward trend in recent quarters economy-wide as the labour market has cooled.

• Inflation remains sticky and businesses reported a marginal uplift in annual input price growth in Q3 2025, though businesses still anticipate the rate of expansion will slow over the year ahead.
• Selling price inflation is easing gradually and companies project above-average rises in the year ahead.
• All sectors expect input price inflation will soften over the coming year and the majority of sectors plan to reduce the rate at which they raise their selling prices in the year ahead.

Businesses reported that annual input price inflation ticked up slightly in Q3 2025, rising from 3.7% to 3.8%. This increase is consistent with the trend observed in annual CPI inflation which reached 3.8% in July and August. Despite this uplift, companies remain optimistic that price growth will soften over the coming year, with July’s 7% reduction in the OFGEM energy price cap likely a contributing factor to this outlook. However, the anticipated increase of 2.8% remains above the 2.7% historical norm.

Despite the overall increase, most sectors reported a decline in input price inflation in the year to Q3 2025. The Energy, Water & Mining and Banking, Finance & Insurance sectors were the main exceptions to this trend, with both reporting notable uplifts in input price growth to 4.1% and 3.3% respectively. However, the Property sector recorded the largest annual input price growth of any sector at 4.3%, down slightly from the previous quarter. Inflation has been particularly stubborn in the Property sector, with input price growth rising through the first half of the year. And while all sectors anticipate that inflation will ease over the coming year, businesses in the Property sector still expect significant growth, with a projected rise of 3.7%. Conversely, the Banking, Finance & Insurance sector is anticipating the smallest rise in input costs over the next 12 months, at just 1.8%.

Following a slight uptick in the previous quarter, businesses reported that annual selling price inflation eased slightly in Q3 2025, to 2.2%. This means that selling price inflation is back at the rate reported in Q1 2025, further indication of the gradual cooling of inflationary pressures. Companies plan to slow selling price inflation to 1.9% in the year ahead, though this is still considerably above the historical average of 1.4%.

At the sector level, only businesses in Construction and Banking, Finance & Insurance increased the rate at which they raised their selling prices in the year to Q3 2025 compared to the previous quarter. Construction companies recorded the largest uplift of any sector at 2.7%, nearly double the sector’s historical average (1.4%), while Banking, Finance & Insurance was at the opposite end of the scale, with a rise of 0.9%, but this was still above the sector’s 0.7% historical norm. Both sectors reported a rise in salary inflation in the quarter which could have contributed to the rise in selling prices. Energy Water & Mining and the Transport & Storage sectors are the only sectors anticipating an uplift in the rate that they increase their selling prices over the coming year, with the former expecting the sharpest rise of any sector, at 3.0%.

• Employment growth eased in Q3 2025 and the outlook for the year ahead remains subdued, but there was significant variation between sectors over the year to Q3 2025 which is projected to continue.
• IT & Communications businesses expect the strongest employment growth over the next 12 months, while Retail & Wholesale companies plan a slight reduction in their staff levels.
• Annual salary inflation ticked up slightly for the first time in over two years in Q3 2025. Companies anticipate a modest slowdown in growth over the coming year, but the projected rate is still, significantly above the historical average.

Annual employment growth returned to its downward trajectory in Q3 2025, as companies reduced the rate at which they increased their staff levels to just 0.9% in the year to Q3 2025, down from 1.4% in the previous quarter. Anecdotal evidence suggests that companies are still tackling the rise in labour costs following April’s increases in National Insurance Contributions and the National Living Wage and are concerned about the impacts of the Employment Rights Bill, currently making its way through Parliament. As a result, the demand for labour remains subdued and companies have reduced their expectations for growth over the coming year to 1.2%, marginally below the historical average (1.3%) and the lowest anticipated rise since Q3 2020.

Significant variation remains between sectors, with Energy, Water & Mining companies reporting that annual growth increased slightly from 3.1% in the previous quarter, to 3.2%, the largest expansion of any sector. Conversely, April’s business cost rises mean that increased labour costs continue to pose a significant challenge for many businesses and resulted in three sectors reducing their staff levels over the previous 12 months. Property and Retail & Wholesale reported the largest declines, each dropping by 0.7%, while the Manufacturing & Engineering sector recorded a comparatively modest contraction of 0.3%.

Most sectors expect employment levels to increase over the year ahead. Retail & Wholesale is the exception, and its relatively large concentration of lower paid workers left businesses in the sector particularly exposed to the 6.7% rise in the National Living Wage. Over the next 12 months, these companies plan to reduce their employment levels by 0.2%, the first projected decline since Q3 2020. The IT & Communications sector, buoyed by comparatively strong domestic sales and exports growth projections, plans to increase employment by 2.0% in the next 12 months, marginally exceeding the sector’s historical average of 1.8%.

Concerns over the availability of non-management skills increased slightly in Q3 2025, with the share of companies citing the issue climbing above the historical average (18%), to 20%. This challenge was most prevalent in the comparatively fast-growing Energy, Water & Mining sector, with 28% of companies reporting the issue as a growing challenge in Q3 2025, as they remain concerned about the availability of suitably skilled workers to meet the expected rise in exports activity over the coming year.

Business reported the first uplift in annual salary inflation since Q3 2023, as wages growth rose slightly from 3.0% in the previous quarter, to 3.1% in Q3 2025. Despite the projected uplift in employment levels in the year ahead, companies anticipate a marginal slowdown in salary growth to 2.7% over the next 12 months.

Companies in the Energy, Water, & Mining sector recorded the strongest growth of any sector, at 4.3%, nearly double the sector’s historical average (2.5%). While businesses expect salary growth to ease slightly over the coming year, the projected rate of increase (3.0%) remains above the historical average. Almost all sectors expect salary growth to soften over the coming year, with only Business Services and Manufacturing & Engineering anticipating modest uplifts.

• Businesses reported a marked slowdown in annual profits growth in Q3 2025, dropping further below the historical average, and companies softened their growth outlook further.
• Capital investment growth continued to ease in the year to Q3 2025, falling below the historical average, with a similar pace of growth anticipated over the year ahead. R&D budget expansion increased slightly compared to the previous quarter but is expected to slow.
• Investment growth was strongest in Energy, Water & Mining and businesses expect this to continue over the coming year, while investment prospects are the weakest in Construction.

UK companies reported that after a modest uptick in the previous quarter, profits growth softened in the year to Q3 2025, to 2.3%, falling further below the historical average (3.1%). This slowdown was underpinned by the rises in input cost inflation, employment and salary costs, alongside flat domestic sales and weakened exports growth over the past 12 months. Though an uplift is projected for the coming year, companies have reduced their expectations for profits growth for the fifth quarter in a row and now anticipate an increase of 4.1%, down from 4.4% in the previous quarter

Increased uncertainty and sluggish profits growth have impacted the appetite for investing over the past year. Alongside these factors, the cost of borrowing remains relatively high, and businesses continue to have concerns over the likely return on investment. Businesses reported that capital investment growth eased from 2.3% in the previous quarter to 1.8% in the year to Q3 2025, dropping below the historical average (2.1%). These unfavourable conditions are expected to continue over the coming year, with businesses planning to slow the rate of expansion slightly further to 1.7%.

R&D budgets increased for the second consecutive quarter in Q3 2025, rising to 1.8%, matching the historical average. However, while businesses have improved their outlook for the year ahead, they still plan to moderate growth over the coming year to 1.6%.

At a sectoral level, Energy, Water & Mining recorded the largest uplift in capital expenditure in the year to Q3 2025, at 5.4%. This strong rise was underpinned by increased regulation aimed at protecting UK waterways and the continued transition to net zero. The comparatively sharp rise is expected to continue over the next 12 months, with companies in the sector planning to increase investment expenditure by 5.2%, still significantly above the historical average of 3.0%. At the other end of the scale, Construction companies have significantly reduced their outlook for investment growth over the coming 12 months and plan to increase expenditure by just 0.1% over this time, considerably below the sector historical norm (1.6%).

• Significant disparities remain across sectors in Q3 2025, but confidence remains in negative territory for the majority of sectors.
• The Property sector was the most pessimistic, with confidence falling into deep negative territory. Sentiment in Energy, Water & Mining has improved significantly from the previous quarter and was the most optimistic sector in Q3 2025.
• All sectors expect annual input price inflation will soften over the next 12 months. Banking, Finance & Insurance expects the lowest input price growth and the softest rise in selling prices for the coming year as salary growth also eases.

Slowing economic growth and elevated concern over the tax burden and regulatory requirements left sentiment in negative territory in most sectors in Q3 2025. Cooling demand across both residential and commercial markets, reflecting more cautious households and higher borrowing costs as well as increased concern over regulations, including the Renters’ Rights bill currently making its way through Parliament, likely underpins the increased pessimism in the Property sector. The sector’s Business Confidence Index score dropped from -6.8 in the previous quarter to -23.2, the lowest score of any sector. Property companies had the weakest profits growth expectations of any sector and the proportion of Property companies that cited regulatory requirements as a rising challenge reached a seven-year high (58%).

In contrast, greater policy clarity, a supportive investment backdrop and a strong profits growth outlook for the year ahead have boosted confidence in the Energy, Water & Mining sector out of negative territory, with confidence rising from -2.0 to +21.2 in Q3 2025. This increased optimism was supported by strong exports growth of 6.6% in the year to Q3 2025, more than double the historical average of 2.9%. OFGEM’s announcement of a 2% increase in the energy price cap in October will also provide companies with greater scope to increase their prices, with the sector anticipating both the largest rise in selling price inflation over the coming year (3.0%) and the strongest profits expansion, at 5.6%. Greater policy clarity came from the announcements in September under the GB Energy Plan, which included 131 contracts granted to generate a record 9.6 GW of renewables.

Construction was the only other sector still in positive territory, though sentiment in the sector declined for the second consecutive quarter in Q3 2025, to +1.4 and below the sector historical average (+3.8). April’s rise in the National Living Wage and Employers’ National Insurance have been a particular challenge for Construction companies, with nearly three quarters (73%), citing the tax burden as a rising challenge in Q3 2025. Confidence among construction companies soared during 2024 after the new Labour government announced its housing targets and its intentions to reform planning. However, more recent data suggests that housing starts are subdued with ongoing planning issues and the Building Safety Act causing delays.

After falling in the past three previous quarters, the IT & Communications sector recorded the sharpest annual domestic sales growth in Q3 2025, with an expansion of 5.4%, outpacing all other sectors. This sector is the only sector expecting slightly softer domestic sales growth over the coming year, but the projected rise of 5.3% is still the strongest of any sector.

Most sectors reported a slowdown in annual input price inflation in Q3 2025 compared to the previous quarter and all sectors foresee a further slowdown over the next 12 months. Companies in the Banking, Finance & Insurance sector forecast the softest input cost rises over the next 12 months, with a predicted increase of just 1.8%. This anticipated reduction in inflationary pressures and lower salary growth will translate to slower price rises in the year ahead, with the sector anticipating raising prices by just 0.8%, the lowest growth of any sector. The sector has historically experienced lower than average rates of input price inflation, typically using a relatively narrow range of inputs, with little dependence on materials and a far greater dependence on employment.

• Confidence remained in negative territory in almost all regions in Q3 2025, with Wales the only region to record a positive score.
• Large declines in confidence have resulted in the South West and the West Midlands becoming the most pessimistic UK regions.

Business sentiment remained in negative territory in nearly all UK regions in Q3 2025 as concern over regulation and the tax burden spiked. Businesses in the South West are now the most pessimistic in the UK, with the Business Confidence Index dropping deep into negative territory, to -21.3 in Q3 2025. Elevated regulatory and tax concerns alongside the drop in confidence observed in the Business Services and Property sectors is likely underpinning this increased pessimism within the South West.

However, there have been improvements in some regions, with Wales the only region to record a positive score in Q3 2025, climbing out of negative territory to +0.9. This uplift in confidence is underpinned by improved domestic sales and exports expectations for the year ahead, bolstering the profits growth outlook in the region.

Further analysis of confidence for each region and nation is available in their respective reports on ICAEW Business Confidence Monitor.

• Sentiment remains in negative territory across all company types and sizes, with non-exporters the least optimistic.

Business sentiment declined for most company types and sizes in Q3 2025 with the survey results suggesting that the largest decline in sentiment was among non-exporters, where the Business Confidence Index score dropped from -4.5 in Q2 2025 to -10.0, as concern over the tax burden and regulation impacted domestic demand.

• UK growth was sluggish during the survey period, with economic activity slowing from a strong start in the first half of the year.
• Inflation pressures persisted, with CPI inflation rising to an 18-month high, and pay growth remained elevated, despite gradually cooling labour market conditions.
• Uncertainty linked to global conditions may have eased as trade deals progressed, but domestic uncertainty likely rose ahead of the Budget in November.

Underlying UK economic growth was sluggish in Q3 2025. The ONS estimates that UK GDP rose by 0.3% in Q2 2025, slowing from 0.7% recorded in the previous quarter. The latest monthly data shows that GDP failed to expand between June and July, with manufacturing providing the largest drag on output offset by modest increases in services activity. The monthly GDP data reports that consumer activity overall was flat over the period, despite a recent pick-up in retail sales, which increased for the third consecutive month in August, rising by 0.5% m/m from July.

Inflationary pressure persisted during the survey period. Annual CPI inflation rose to 3.8% in the year to July 2025 with the same annual rate reported in August, the highest rate since January 2024. The Monetary Policy Committee voted to lower the Bank Rate from 4.25% to 4.0% in August and held rates in September. Further cuts in the Bank Rate are likely to be gradual through 2026, as annual pay growth (excluding bonuses) remains high, hitting 4.8% in the three months to July. Also, after a 7% decline in July, Ofgem announced a 2% increase in the energy price cap which was introduced on 1 October 2025.

Labour market conditions continued to cool, as job vacancies fell by 1.5% between March and May 2025 and June to August 2025 and were down 119,000 from the previous year. Payrolled employment also fell for the seventh consecutive month in August, down 127,000 compared to 12 months earlier, with evidence that the National Insurance Contributions (NICs) and rises in the National Living Wage in April have impacted headcount, recruitment and pay growth as well as profits growth and general inflation.

Following a period of heightened global uncertainty, particularly after the US “Liberation Day” tariff announcements on 2 April, exporting and geopolitical concerns may have eased as trade deals progressed. During President Trump’s visit to the UK in September, the UK Government announced it had secured £150bn worth of US investment in an agreement dubbed the “Tech Prosperity Deal”.

Though international headwinds may have eased somewhat during the survey period, the forthcoming Budget on 26 November could yet add to domestic headwinds, and the 2025 Q3 Bank of England’s Agents' summary of business conditions states that many contacts cited the government’s upcoming Autumn Budget as a source of uncertainty.

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