UK business confidence dropped to two-year lows due to tax hikes and global trade tensions
Business confidence in the UK has reached its lowest level in two years, according to new data from the Institute of Chartered Accountants in England and Wales (ICAEW), as they have caused losses to company sentiment as tax pressures rise and global trade tensions escalate.
In its latest quarterly survey of 1,000 chartered accountants, ICAEW reported that its business confidence index fell to -3 in the first quarter of 2025, down from 0.2 in the last quarter of last year, the weakest reading since the second half of 2022. The discovery reflects increasing anxiety about operating costs and faster sales, reducing the economic trend of Donald Trark.
“These figures suggest that this year is a very painful person for the UK economy,” said Suren Thiru, director of economics at ICAEW. “Accelerating anxiety about future sales results, the intoxicating tax rate hikes in April and U.S. tariffs can help push business sentiment into ominous areas.”
The survey shows that business top priority has changed significantly, with 56% of respondents seeing higher tax revenues, especially the increase in employer national insurance contributions (NICs) introduced by Prime Minister Rachel Reeves, which is an increasingly worrying issue. This marks the highest level of tax-related anxiety recorded since the investigation began in 2004.
Reeves' £40 billion tax increase in the fall budget, effective April 6, has sparked concerns that increasing costs will curb confidence in investment, recruitment and consumer.
Trade tensions and policy uncertainty on Outlook
Businesses are also increasingly uneasy about the broader global environment. The latest round of tariffs proposed by Trump in March has raised concerns that products originally scheduled to be U.S. may be redirected to markets such as the UK, weakening domestic suppliers and dent exports. Analysts warn that such trade disruptions could bring UK GDP growth to near zero, according to data from the National Institute of Economic and Social Research (NIESR).
Although the UK economy was surprised at a monthly growth of 0.5% in February, official data show the resilience of consumer and business spending despite outstanding performance in forward-looking surveys. But employment indicators are flashing red, with some surveys showing the fastest job losses since the 2008 financial crisis, even if official labor market data have so far shown a more stable situation. The next set of working data will expire on Tuesday, followed by inflation data on Wednesday.
Businesses can also reduce expectations for domestic growth, with sales forecasts now weakest since the third quarter of 2022. This slowdown, coupled with ongoing cost pressure, is expected to intensify calls for action by the Bank of England. While inflation remains hovering above the bank's 2% target, many in the market are now expected to lower interest rates on May 8.
“Emotional music is getting more and more sour,” Thiru added. “It could get worse as forward-looking indicators of sales and employment activity weaken, and then it will get better.”
Confidence may remain vulnerable as businesses continue to struggle with rising overheads and external shocks, which will place greater emphasis on policy clarity, fiscal support and trade stability in the coming months.
