Business confidence plunges to lowest level since Liz Truss’s mini-budget

Rachel Reeves’s tax hikes have pushed business confidence to its lowest level since the wake of Liz Truss’s calamitous mini-Budget, as firms fret over a surge in costs and slowdown in the domestic economy, a closely watched survey has suggested.

Concerns over a looming tax bill and a slump in sales caused business confidence to fall to a reading of just 0.2 in the final three months of 2024, its weakest level since the the fourth quarter of 2022 and down from 14.4 in the previous quarter, according to the Business Confidence Monitor from accountancy body ICAEW .

The slide in confidence has been felt by every sector of the economy, the ICAEW found, with sentiment falling into negative territory across retail and wholesale businesses, transport and storage and property firms.

“Our data suggests that the UK economy endured a rather traumatic end to 2024 as slowing domestic activity and the aftershocks from a difficult Budget caused business confidence to nosedive,” said Suren Thiru, the ICAEW’s economics director.

The latest reading underscores the challenge facing Reeves and Keir Starmer as they look to boost growth in the economy and win back the confidence of the private sector following the Chancellor’s maiden Budget in October.

While the government has insisted growth is its “number one mission”, projections from the independent Office for Budget Responsibility have suggested that output will remain unchanged over the next five years.

A planned £70bn spending splurge by the Reeves is also expected to fuel inflation in the short term, causing traders to pare bets on the speed of interest rate cuts next year. Markets are currently pricing in just two rate cuts this year.

‘The costs of the Budget fell almost solely on business’

“It’s little surprise that business confidence has fallen considerably,” said Alan Vallance, chief executive of the ICAEW.

“The costs of October’s Budget fell almost solely on business and, as this survey makes clear, our members have expressed concerns about measures that place additional costs on those they support and the wider economy.

“We want Britain to be the best place to invest and to start, run and grow a business. To achieve this, it’s vital that the government delivers on its mission to promote economic growth.”

Firms have also warned they will be forced to lay off staff and ramp up prices to counter the £25bn rise in National Insurance contributions from employers, set to come in from April.

Smaller firms have warned the charge could hammer profits and force them to slash their headcount in the coming year. According to the ICAEW’s survey, confidence among small and medium-sized firms slumped into negative territory for the first time since the final three months of 2022, recording a drop from 12.8 to -4.7.

Fears are growing of another round of tax hikes or swingeing spending cuts after a sharp rise in the cost of government borrowing over the past week, which is expected to have wiped out the Chancellor’s so-called fiscal headroom.

Speaking in parliament yesterday, Reeves insisted the government’s fiscal rules are will be met “at all times”, raising the prospect of spending cuts this year.

“I’ve been really clear. We will meet our fiscal rules that I set out in the Budget, and we will do that at all times,” she told MPs.

“The economic headwinds that we face are a reminder that we should – indeed we must – go further and faster in our plan to kickstart economic growth,” she told MPs, adding that it was not reasonable to blame her fiscal policy for the rise in gilt yields.

While government bond yields have been pushed up over the past week on fears of trade tariffs from Donald Trump, the UK has suffered the sharpest rise among Western economies.