A new survey by the Institute of Chartered Accountants in England and Wales (ICAEW) has revealed that business confidence in the UK is at its lowest since the 2008 global financial crisis.
The ICAEW surveyed 1,000 business leaders via its Business Confidence Monitor (BCM) and found that, while sentiment in the latest quarter was on course to return to positive territory for the first time since the end of 2024, confidence plunged from 7.3 at the end of August to -0.5 at the end of September. Renewed hostilities in the Gulf, and subsequent rising oil and gas prices, were cited as weakening overall sentiment.
The survey found that confidence had remained in negative territory for seven consecutive quarters, matching the longest period on record alongside the global financial crisis. Although the latest reading improved significantly from -14.6 in the second quarter, the deterioration in September reversed hopes of a recovery as geopolitical tensions intensified.
Geopolitical risks were identified as the biggest challenge to business performance, affecting 58% of firms. Labour costs were the second-largest concern, cited by 53% of businesses, followed by regulation at 47%, energy costs at 45% and the tax burden at 41%. The research also found that businesses had become more cautious about the year ahead, with expectations for growth in domestic sales, profits and turnover all slowing in the third quarter.
Despite the pressure on costs, businesses were continuing to invest in productivity and efficiency improvements. The research found that 63% of firms had sought to improve productivity since the start of the year, compared with 54% that had raised prices and 25% that had put expansion plans on hold.
Research and development activity also increased, reaching its highest level since the third quarter of 2022 as businesses looked to improve efficiency and offset rising costs. Growth was strongest in IT and communications, where R&D activity increased by 4%, followed by financial services at 3.5%.
However, employment growth slowed to 0.7% in the third quarter, down from 1.4% in the previous quarter and its lowest level since the second quarter of 2021. ICAEW said the slowdown was likely to reflect elevated labour costs and increased automation, with employment growth expected to remain muted over the next 12 months.
The survey also highlighted significant differences between sectors. Confidence was highest among businesses in IT and communications, at 14.5, followed by energy, water and mining at 11.4. Property recorded the lowest confidence reading at -14.4, while construction stood at -8.2.
Alan Vallance, ICAEW Chief Executive, said: “The warning bells will be ringing for the Prime Minister and Chancellor ahead of the Budget, with sentiment stuck in a rut as the resilience of Britain’s businesses continues to be tested by geopolitical events. While there is much the government can’t control, the Budget presents an important opportunity to turn ambition into action. Businesses have been burdened by rising costs, higher taxes, regulatory change and persistent uncertainty for far too long.
“Business rates reform is key to unlocking growth. A one-year freeze in the multiplier would provide immediate relief, while a commitment to longer-term reform would boost confidence and investment.”
Suren Thiru, ICAEW Chief Economist, added: “The third quarter was characterised by a sharp shift from confidence to caution, with the renewed US-Iran hostilities in September extinguishing early optimism by reigniting fears over rising costs and weaker economic prospects. Cooling price and pay indicators point to inflationary pressures remaining under control, with firms still struggling to pass higher costs onto customers, making case [sic] for a November rate rise more difficult to justify.
“Though stronger R&D spending could boost productivity, it is as much about survival as success, with firms investing in innovation to strengthen resilience amid growing headwinds, while recruitment takes a back seat. Weakening indicators of future sales, profits and turnover point to a challenging end to the year, with surging energy costs and rising inflation increasingly squeezing growth and leaving the Chancellor facing a tougher Budget balancing act.”
The findings suggest that while businesses are continuing to invest in efficiency and innovation, rising energy costs, geopolitical uncertainty and weaker employment growth are weighing on confidence. ICAEW said the Budget would be an opportunity for the government to give businesses greater certainty and support their ability to invest and grow.
