Business confidence in the UK has declined for the first time in a year as speculation about potential tax hikes in the upcoming budget grows.
- The Institute of Chartered Accountants in England and Wales (ICAEW) reported a drop in business confidence from 16.7 to 14.4 between the second and third quarters.
- Nearly a third of the 1,000 professional advisers surveyed identified the “tax burden” as a primary concern.
- Despite reduced inflationary pressures, salary growth is decelerating, while domestic sales peak and export growth dwindles.
- Calls for VAT and business rate reforms are rising as business leaders seek long-term economic stability.
According to the latest Business Confidence Monitor by the Institute of Chartered Accountants in England and Wales (ICAEW), business confidence has slipped to its lowest in a year, falling from 16.7 in Q2 to 14.4 in Q3. The survey, which compiled insights from 1,000 professional advisers, highlighted that 29% of respondents are particularly concerned with the increasing tax burden.
The dip in confidence surfaces amidst speculation surrounding looming tax increases, aimed at bolstering public finances. Alan Vallance, CEO of ICAEW, emphasized that “businesses are troubled by the tax burden and increasingly reluctant to invest.” With the UK on the verge of hosting a significant investment summit, Vallance calls for clarity and stability from the government to support businesses.
Even as inflationary pressures show some signs of easing, businesses are not entirely optimistic. Salary growth has slowed to 3.6% year-on-year, the most gradual pace in over two years, although this rate remains nearly double that of pre-pandemic levels. Concurrently, domestic sales growth reached a yearly peak of 3.8%, yet exports have dwindled, slowing to 2.7%, marking a low for 2024.
There is also a notable slowdown in investment growth, anticipated to rise by only 1.9%, a slight dip from 2.1% from the previous quarter. Suren Thiru, Economics Director at ICAEW, suggested that these statistics provide a “slight reality check” for the UK economy. He noted that the combination of diminishing export and investment activity, coupled with fears of a challenging budget, has dented business confidence even though there is a boost from stronger domestic sales growth.
As the UK economy edges towards a forecasted growth in the third quarter, albeit at a easing pace in light of receding inflation boosts, there is a concerted call among business leaders for reforms in VAT and business rates, alongside enhanced public and private investment, to facilitate enduring economic growth and prosperity.
Business confidence in the UK faces challenges as potential tax increases loom, demanding clarity and reform in fiscal policies.
