UK Business Confidence Monitor: National

1. The Business Confidence Index fell to -11.1 in Q4 2025 during a period of speculation around the November Budget and record concerns about the tax burden among business as sales growth remained weak and inflationary pressures persisted.
2. The tax burden was reported by 64% of all companies as a growing challenge, with record highs in many sectors, while regulatory worries were reported by over half of businesses, also reaching record highs in Property, Retail & Wholesale and Manufacturing & Engineering.
3. Domestic sales and exports growth remains subdued in Q4 2025 with both measures lagging the historical norm, however both are expected to improve and exporters are relatively upbeat about prospects compared to the average.
4. There was further evidence of the loosening of UK labour market conditions as employment growth dipped further and some sectors reported further job declines in Q4 2025. The capital investment and R&D outlook also remains weak.
5. Sentiment fell in most sectors, with sharp declines reported in Construction and Retail & Wholesale, while Property remains the least confident sector.

• The Business Confidence Index fell again in Q4 2025, with uncertainty about the Budget weighing on sentiment as concerns about the tax burden rose to yet another record high.
• Sluggish domestic sales and exports growth are also a drag on confidence, but businesses continue to expect both to return to above average rates next year.
• Sentiment fell in most sectors, with sharp drops in Retail & Wholesale and Construction, amid growing concerns about customer demand, while Property remains the least confident.

Sentiment fell for the sixth consecutive quarter in Q4 2025 and is at its lowest level since Q4 2022. The Business Confidence Index dropped to -11.1, down from -7.3 in the previous quarter and the fifth consecutive quarter below the long-run average (+4.7). Pre-Budget uncertainty weighed on sentiment, with the bulk of respondents interviewed before the Budget was delivered in late November. The tax burden remains the greatest growing challenge in Q4 2025, reported by 64% of businesses, another survey record high.

Domestic sales expanded by 2.9% in Q4 2025, the third quarter in a row where growth has fallen short of the historical norm (3.1%) and the lowest point since Q2 2021, yet businesses lifted their 12-month growth expectations to 4.2%. Meanwhile, at 2.5% in Q4 2025, exports growth remains significantly below the historical average (3.0%). Exporters are, however, much more confident overall than non-exporting businesses, with a confidence score of -2.5 compared to -20.8 for non-exporters. Exports growth is expected to rise to 4.1% next year, a more robust outlook than recorded in recent quarters, as businesses expect some of the headwinds associated with US tariffs to dissipate.

Sentiment declined in most sectors in Q4 2025, with the sharpest drops recorded in Energy, Water & Mining, Banking, Finance & Insurance and Construction. However, despite only a small decline, Property remains the least confident sector at -23.4 amid record-high concerns about both the tax burden and regulatory requirements and businesses reporting weak profits growth of just 1.2%.

Alongside tax challenges and regulations, growing concern about customer demand is weighing on sentiment among Retailers & Wholesalers (-16.6) and Construction businesses (-16.2) which are the least confident sectors alongside Property. Retailers and Property businesses anticipate further improvements to domestic sales while Construction companies are less optimistic and expect growth to slow over the coming year.

Encouragingly, confidence improved in some sectors. IT & Communications was the only sector to report a positive confidence score in Q4 2025, edging up to +0.3 from -0.2 in the previous quarter. Transport & Storage (-0.8) and Business Services (-3.1) were both more optimistic but remain well below their respective historical norms.

• Tax concerns hit another survey-record high reaching 64%.
• Regulatory requirements were a more prominent growing challenge for businesses, reported by over half of the companies surveyed, the highest since Q2 2018.
• Challenges relating to customer demand also increased, particularly for Retailers, while there was also a small rise in reports of issues that may be leading indicators of increasing financial stress.

Concern about the tax burden rose to another survey-record high in Q4 2025 as 64% of businesses flagged the issue as a growing challenge, with the proportion at over three-times the historical average (19%). Pre-Budget speculation and earlier tax hikes fuelled the anxiety among businesses. The issue was particularly marked for the Business Services (72%) and Property (69%) sectors, also at respective record highs.

Regulatory concerns also continued to grow, reaching 51% in Q4 2025, the highest proportion recorded since Q2 2018. Survey record highs were reported in Manufacturing & Engineering (52%), Retail & Wholesale (55%) and Property (65%), while concern remains elevated in the highly regulated Banking, Finance & Insurance (57%) and Energy, Water & Mining (55%) sectors.

Amid flat sales growth, there was a rise in businesses identifying customer demand as a growing challenge, reported by 41% of businesses in Q4 2025 and above the historical norm (38%). However, concern was most prominent in Retail & Wholesale (61%), the highest proportion reported in the sector since Q3 2020 as consumer confidence remains weak. The issue was also more frequently reported in Construction (47%), IT & Communications (45%) and Property (44%).

Concern about competition in the marketplace also edged up in Q4 2025 to 38% of businesses, rising above the historical average (36%). The issue was most pronounced in Banking, Finance & Insurance (53%) and Retail & Wholesale (51%) with the proportions in these sectors at their highest rates since 2018, alongside IT & Communications (52%) which was the highest rate in the sector since Q1 2016.

With evidence that the UK economy slowed considerably in the second half of the year, the BCM found that challenges typically associated with rising financial stress for businesses rose in Q4 2025. This includes late payments which was reported by 22% of businesses, access to capital (15%) and bank charges (10%). All three variables are now one percentage point above their historical norm.

Concern over the level of government support has been building over recent quarters. There was a notable spike in reports in the Midlands regions in Q3 2025, believed to be linked to the JLR cyber-attack. However, while reports in these regions have subsided, overall, 14% of businesses reported government support as a growing challenge, close to double the historical norm (8%), with Construction and Energy, Water & Mining (both 22%) and Manufacturing (19%) recording this issue most frequently.

• Annual input price inflation edged up again in Q4 2025 and, while businesses have increased their inflation expectations slightly for the year ahead, they anticipate cost pressures will ease.
• Selling price inflation also ticked up slightly compared to the previous quarter and businesses plan to increase prices at a similar pace over the coming year.
• All sectors expect input price inflation to moderate over the next 12 months and business in most sectors plan to either maintain or soften the rate at which they raise their selling prices.

Annual input price inflation rose for the second consecutive quarter in Q4 2025, increasing from 3.8% in the previous quarter, to 4.1%. Consecutive uplifts in the OFGEM energy price cap of 7% in July and a further 2% in October likely contributed to the rise. The latest data shows that annual CPI inflation declined to 3.2% in the year to November and businesses expect inflationary pressures to cool further over the year ahead, however, they have raised their estimates for input cost growth to 3.0% y/y, marginally ahead of the 2.7% historical average.

Most sectors reported an uplift in annual input price inflation in the year to Q4 2025. The Energy, Water & Mining sector was the exception, with input price growth easing to 3.9%. The Property sector posted the sharpest annual input cost growth at 4.6%, significantly above the sector’s historical norm (2.7%). All sectors expect moderation ahead, with the Banking, Finance & Insurance and Transport & Storage sectors anticipating the softest rises in input prices, at 2.2% next year. Conversely, companies in the Business Services sector project the highest rate over the next 12 months, at 3.4%.

Rising input cost inflation encouraged businesses to lift their selling price by 2.3% in the year to Q4 2025, up slightly from the previous quarter and well above the historical norm (1.4%). They plan similar rates over the next year, at 2.2%.

All sectors, except Energy, Water & Mining, raised selling prices at a sharper pace than their respective historical averages in Q4 2025. The Transport & Storage sector recorded the sharpest rise of any sector, at 3.1%, markedly above the sector’s historical average (1.8%). At the other end of the scale, Banking, Finance & Insurance recorded the smallest uptick, at just 1.0%, though this is still marginally above the sector’s historical average (0.7%). Looking ahead, only businesses in Energy, Water & Mining plan to increase the rate at which they uplift their selling prices over the coming year, with a projected increase of 2.1%, equalling the sector’s historical norm. Transport & Storage and Business Services anticipate the largest price rises over the coming year (2.6%).

• Employment growth eased further, with several sectors reducing their staff count in the year to Q4 2025 and the outlook for the year ahead remains muted.
• IT & Communications companies have the strongest employment growth expectations, while Transport & Storage businesses plan to reduce their workforce slightly over the year ahead.
• Annual salary inflation slowed slightly in Q4 2025 and companies expect wages will rise at a similar pace over the coming year, notably above the historical average.

Annual employment growth continued on its downward trajectory in Q4 2025, as companies slowed the rate at which they increased their staff levels slightly to 0.8%, down from 0.9% in the previous quarter. This is the lowest rate of jobs growth reported in the survey since Q2 2021 and, outside of the pandemic period, is the weakest recorded since Q3 2012. The BCM shows that the growth in annual training budgets also declined to 0.8%, the lowest rate since Q2 2012 outside of the pandemic period.

Official data shows that the labour market has cooled after the uplifts in employment costs related to April’s rise in National Insurance Contributions and the National Living Wage (NLW) and evidence of slowing economic growth. Alongside these factors, the government announced a further 4.1% rise in the NLW set for April 2026 and businesses may have also been wary of implications of the Employment Rights Bill, which achieved Royal Assent on 18 December. Despite these challenges, businesses expect a marginal uplift in employment growth over the next 12 months to 1.3%, matching the historical average.

Digging beneath the surface, there are significant disparities in jobs growth between sectors. Business Services observed the strongest growth, with a 2.2% rise in employment in the year to Q4 2025 and broadly consistent with the sector norm (2.1%). In contrast, April’s business cost rises disproportionately impacted sectors that generally have higher concentrations of lower paid roles, leading them to reduce their staff counts in the year to Q4 2025. Manufacturing & Engineering and Transport & Storage companies both saw contractions of 0.2%, while Retail & Wholesale recorded a 0.1% decline.

The employment outlook for the coming year is more positive, with only the Transport & Storage sector planning to reduce employment further, with a slight decline of 0.1% projected. IT & Communication companies plan the largest uplift of 2.8%, significantly above the sector’s historical average of 1.8%.

As the appetite for hiring softened, so have concerns over the availability of skills. The proportion of businesses reporting non-management skills constraints dropped below the historical average (18%), to 17%, while the availability of management skills eased to 13%. Staff turnover concerns also ticked down to 20%.

After reporting the first uplift in two years in Q3 2025, businesses reported that annual wage inflation slowed to 2.9% in the year to Q4 2025. Despite anticipated employment growth, rises in NLW and potential additional costs associated with the Employment Rights Bill, companies expect salary growth will ease slightly to 2.8% in the year ahead, maintaining the gap to the historic norm (2.2%).

Construction businesses saw the sharpest rise in salaries of any sector in the year to Q4 2025, at 3.4%, significantly above the sector’s historical norm (2.1%). Over the year ahead, Energy, Water & Mining businesses expect the largest uplift in annual salary inflation, with a projected increase of 3.4%.

• After slowing in the previous quarter, profits growth ticked up in Q4 2025 but remains below its historical norm. Businesses anticipate a marked uplift over the next 12 months.
• Capital investment growth edged up, but companies plan to reduce both capital investment and R&D budget growth in the coming year.
• Investment growth is set to slow across most sectors. Transport & Storage companies reported the sharpest rise in capital investment growth over the past year, but it is expected to cool considerably.

After a dip in Q3 2025, annual profits growth increased slightly in the year to Q4 2025, rising by 2.7%, but still below the historical norm of 3.1%. With stronger domestic and export demand and easing cost pressures expected, businesses foresee profits growth accelerating to 4.3% over the coming year.

Capital investment rose by 2.0% in the year to Q4 2025, up slightly from the 1.8% reported in Q3 2025. Despite this uptick, the projected improvement in profits has not fed through to the investment outlook, with businesses planning to reduce capital expenditure growth over the next 12 months to 1.6%, widening the gap to the historical norm (2.1%). Even after the reduction of interest rates through 2025, borrowing costs remain high and elevated levels of uncertainty have exacerbated businesses’ concerns about the possible return on investment.

R&D budget growth slowed to 1.6% in the year to Q4 2025, dropping below the historical average of 1.8%, and it is set to slow further to just 1.3% next year.

At sector level, capital investment spending growth was strongest in Transport & Storage, with businesses reporting a 3.5% uplift in Q4 2025. This comparatively strong rise was likely linked to the continued shift towards green transport in major cities as part of the transition to net zero, as well as new digital systems rolling out for the EU Entry/Exit System (EES) in October 2025. However, this comparatively strong rate of growth is not expected to continue over the coming year, with companies planning to slow capital investment growth to just 0.8%, just over one third of the sector’s historical average of 2.3%. Indeed, most sectors plan to either maintain or slow the rate of investment growth, with only Construction and Manufacturing & Engineering intending to increase their respective investment rates over the coming year.

• Business sentiment varied significantly between sectors in Q4 2025 – all recorded negative scores apart from IT & Communications.
• Confidence fell sharply in Energy, Water & Mining, Construction and Retail & Wholesale, while Property remains the most pessimistic sector.
• All sectors expect annual input price inflation to moderate in the year ahead and most expect sales growth to improve.

Pre-Budget uncertainty and elevated concern over the tax burden and regulations underpinned weak business confidence across all sectors in Q4 2025. Property remains the most pessimistic sector as demand continues to cool across both commercial and residential markets, reflecting more caution in the housing market amid elevated borrowing costs as well as increased regulation from the Renters’ Rights Bill which achieved Royal Assent in late October. The share of Property companies that cited regulatory requirements as a rising concern reached a survey-record high (65%) in Q4 2025, more widespread than in any other sector. Domestic sales growth expectations are among the weakest of any sector and confidence slipped to -23.4 from -23.2 in the previous quarter.

At the other end of the scale, confidence in the IT & Communications sector edged into positive territory in Q4 2025, reaching +0.3, though this was still significantly down on the sector’s historical average (+12.9). The improvement in confidence was likely linked to the UK-US Tech Prosperity Deal, announced in September 2025 and the Bank of England Agents' summary of business conditions for December 2025, which noted that demand for AI and cyber security also remains strong. Businesses in the IT & Communications sector expect profits to grow by 6.5% for the year ahead, the strongest outlook across all sectors.

While the tax burden is cited as the main challenge for most sectors, for Banking, Finance & Insurance the issue sits behind regulatory requirements (57%) and joint-second with competition in the marketplace (53%). Concern about customer demand has also ticked up to 34%, edging ahead of its historical norm. The combination of these factors, coupled with a weaker domestic sales outlook, help explain the dip in confidence in the sector to -12.2 in Q4 2025, from -3.3 the previous quarter.

Concerns about customer demand were also at a two-year high among Construction businesses (47%) and reached 61% among Retail & Wholesale companies, the highest proportion reported outside of the pandemic period in the survey. Confidence in Construction fell sharply to -16.2 in Q4 2025 from +1.3 in the previous quarter, while sentiment in the Retail & Wholesale sector slipped to -16.6. Despite concerns about customer demand, both sectors anticipate domestic sales will surpass their respective historical averages over the coming year.

All sectors, apart from Energy, Water & Mining, reported an uplift in annual input cost inflation in Q4 2025 compared to the previous quarter, however, all sectors anticipate a slowdown over the next 12 months. Businesses in the Banking, Finance & Insurance and Transport sectors expect the lowest input price increases, both expecting a 2.2% rise over the coming year.

However, businesses have contrasting plans to increase the rate of their selling prices, with companies in the Transport & Storage sector planning to uplift prices by 2.6%, the joint largest of any sector (alongside Business Services) while Banking, Finance & Insurance intends to increase prices by just 1.1% over the year. Energy, Water & Mining is the only sector planning to raise its selling prices at a faster rate compared to the year just gone, intending to increase them from 1.8% in the 12 months to Q4 2025 to 2.1% over the coming year.

• Confidence declined significantly in many UK regions, with the South East and the East of England becoming the most pessimistic.
• Sentiment remained in negative territory in almost all regions in Q4 2025, with the North West the only region to record a positive score.

Confidence remained in negative territory in almost all UK regions in Q4 2025 as concerns over the tax burden and regulations persist. Companies in the South East are now the most pessimistic in the UK with the Business Confidence Index declining to -19.1 in Q4 2025, from -11.0 in Q3 2025. The East of England suffered a larger fall in sentiment with its score dropping to -18.5 from -3.9 in the previous quarter.

In contrast, there have been improvements in some regions, with the North West the only region to record a positive score in Q4 2025, climbing out of negative territory to +12.9. This uplift in sentiment is underpinned by a solid outlook growth outlook for domestic sales and profits for the coming year.

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 nearly all company types and sizes, with only UK Listed companies in positive territory.

Business sentiment declined for most company types and sizes in Q4 2025. The survey results suggest non-exporters were the most pessimistic, with the Business Confidence Index score dropping from -10.0 in Q3 2025 to -20.8. Private SMEs employing fewer than 250 workers were less confident (-16.6) than large private companies (-8.1). Only UK Listed companies recorded a positive score, with the Confidence Index climbing out of negative territory to +0.7.

• UK growth slowed considerably in the second half of 2025, with the underperformance of the production sector weighing on growth.
• Inflationary pressures eased with CPI inflation falling faster than expected in November, while pay growth also slowed as the labour market continued to cool.
• The government announced its Budget in November which could provide a small boost to household spending power in the near-term.

UK economic growth faltered in the second half of 2025, with GDP expanding by just 0.1% in Q3 2025 compared to the previous quarter and more recent monthly data showing the economy contracted by 0.1% in both September and October 2025. The latest data highlights the impact of the Jaguar Land Rover cyber-attack on manufacturing output, with production output down by 0.5% in October following a 0.5% fall recorded in Q3 2025. The decline in production has been offset by growth in service sector output and construction, although the latter recorded a decline in October. Retail sales volumes also fell in October and November, following four consecutive monthly rises.

Inflation slowed faster than widely expected during the survey period, as CPI inflation dropped to 3.2% in the year to November, down from 3.6% in October and 3.8% in September. Private sector regular pay growth also eased back to 3.9% in October, from 4.4% in the three-month period to September as the UK labour market continues to cool. Softer earnings growth comes on the back of a deteriorating jobs market as estimates of payrolled employees declined further in November, falling by 38,000 – the largest month-on-month fall in five years. Having seemingly stabilised over the summer as businesses came to terms with the rises in employer NICs and the NLW, headcount has fallen over the last few months as public sector organisations have been recruiting fewer staff. Evidence of slowing price rises and wages growth encouraged the Monetary Policy Committee to vote to cut the Bank Rate to 3.75% in December 2025.

After a long period of speculation which itself is believed to have undermined business and consumer sentiment, the UK Government presented its Budget on 26 November. The Chancellor opted to loosen fiscal policy modestly over the next couple of years by abandoning the two-child limit for universal credit and reducing levies on energy bills, which should provide a small boost to household spending power, while some capital spending was brought forward. However, the Chancellor announced a larger tightening of fiscal policy further out, with the bulk of tax rises planned for 2029-2030.

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