UK business confidence falters amid rising costs & tax burden: BCC

Tax remained the chief concern for businesses, cited by 56 per cent of respondents, followed closely by inflation at 52 per cent. Concerns over interest rates eased slightly to 24 per cent. Meanwhile, price rise expectations have moderated, with 44 per cent of businesses planning hikes in the next quarter—down from a near-record 55 per cent in Q1.

Labour costs remained the dominant pressure, affecting 73 per cent of firms. This impact is particularly strong in the transport and hospitality sectors, with 88 per cent and 83 per cent of firms respectively flagging wage-related cost pressures.

Sales indicators remain largely unchanged, with only 32 per cent of businesses reporting growth in domestic sales over the last three months. Hospitality (36 per cent) and retail (34 per cent) continue to be the hardest hit sectors.

On investment, just 21 per cent of firms have ramped up spending in the past quarter, while nearly a quarter (24 per cent) have cut back. The trend is more severe in hospitality (39 per cent) and transport (32 per cent).

Profit expectations have seen a slight uptick, with 41 per cent anticipating growth, up from 39 per cent in Q1. Yet overall, the figures point to ongoing caution and pressure on UK businesses, with meaningful recovery still elusive.

“Rising employment costs, including increases in National Insurance and minimum wage, are placing significant pressure on margins—particularly for SMEs,” said a small manufacturing firm in Liverpool.

“The government missed an opportunity in the last budget to invest in business and support growth, instead taxing businesses until they are no longer viable,” said micro manufacturing firm in the West of England.

“The rising cost of doing businesses means confidence levels remain at their lowest levels since 2022. However, it’s encouraging to see a drop in the number of firms planning to raise prices. Any signs of inflationary pressures easing is good news for business and the wider economy. But prices remain volatile,” said Shevaun Haviland, director general of the BCC. “Last week, the Prime Minister acknowledged at the BCC’s Global Annual Conference that business has been asked to shoulder a huge tax burden. We now need the government to rule out any further business taxes in this year’s budget.”

“Businesses have welcomed the series of long-term strategies from government in recent weeks, all designed to drive forward economic growth. Our research shows businesses are stuck in a rut and more needs to be done at pace by ministers to turbocharge the economy and boost business confidence,” added Haviland. “Businesses are clear—they want their costs reduced, regulation reformed, and skills barriers removed. Action by policymakers now, will help businesses out of this confidence slump and give firms the tools to boost growth.”

“Business sentiment in Q2 remains fundamentally subdued, following last autumn’s tax increase announcements and the more recent introduction of global tariffs. April’s rise in National Insurance contributions has cemented tax as the dominant concern for firms. Businesses are entering a new employment landscape marked by structurally higher labour costs and administrative requirements, fuelling increased anxiety about redundancies,” said David Bharier, head of research at the BCC.

“While there has been some easing in our price expectations indicator, this follows a spike to near historic highs in Q1 and may indicate that firms already baked in the recent NICs increase. Inflation is likely to remain volatile in the short term, as any escalation in global conflict could trigger renewed shocks to commodity and shipping prices,” added Bharier. “SMEs are operating in an increasingly unpredictable world and have limited capacity to absorb further disruption.”

The survey, conducted by BCC Insights Unit and the UK Chamber network between May 12 and June 9, gathered responses from over 4,500 businesses, 93 per cent of which were SMEs.

ALCHEMPro News Desk (SG)