Biz confidence uncertainty constrains investment by UK SMEs: Experts

Businesses are also expressing deep frustration at policy-making: 79 per cent do not feel the impact of new policies is being properly assessed and 77 per cent do not think policy change is moving at the right pace.

The upcoming budget puts the UK economy at a critical juncture and could make or break business confidence, Benjamin Caswell, senior economist at the National Institute of Economic and Social Research (NIESR), and David Bharier, head of research at the British Chambers of Commerce (BCC), wrote in a blog post.

The BCC quarterly economic survey of 4,600 businesses—mostly SMEs—has shown that since the previous budget, sentiment has fallen to 2022 levels and not recovered. In the third quarter this year, only 48 per cent expected turnover to grow in the next twelve months, compared with 58 per cent at the start of 2024.

Taxation has grown to be the top issue, cited by 59 per cent of businesses, followed by inflation at 57 per cent.

“The central political and economic challenge for the Chancellor is a fiscal ‘trilemma’. The government has promised to stick to its fiscal rules, protect spending on essential services, and avoid tax increases for working households. In practice, it cannot do all three. At least one pledge must give way,” they wrote.

“For businesses, this matters because the route chosen will directly influence the policy landscape. More austerity-like spending cuts could weaken demand and undermine already strained public services; higher taxes could raise the cost of labour or reduce household disposable incomes; and relaxing the fiscal rules risks unsettling markets, increasing borrowing costs for both government and business,” according to blog post.

UK productivity growth has been disappointing since the global financial crisis, and GDP growth is forecast to remain sluggish: NIESR projects just 1.2 per cent a year over the next five years, compared with 1.7 per cent by the Office for Budget Responsibility. The result is a smaller ‘economic pie’ from which to fund public spending, the economists wrote.

The Autumn budget will not just be an exercise in balancing the books. It will set the tone for the UK’s economic trajectory, influence the environment for corporate planning, and shape household demand for years to come. It could also significantly impact the political climate, they added.

ALCHEMPro News Desk (DS)