UK companies are grappling with what’s being described as a “harrowing” yr, as confidence slumps in response to rising home tax burdens and mounting international commerce tensions, in line with new analysis from the Institute of Chartered Accountants in England and Wales (ICAEW).
The ICAEW’s carefully watched enterprise confidence monitor fell to minus 3 within the first quarter of 2025, down from 0.2 within the earlier quarter, marking the bottom studying since late 2022. The drop displays rising concern over the UK’s rising employer taxes, inflationary pressures and subdued home demand.
The downturn in sentiment follows the federal government’s latest resolution to boost employer nationwide insurance coverage contributions by £25 billion—introduced by Chancellor Rachel Reeves in October and carried out on 6 April. This got here alongside a 6.7 per cent rise within the nationwide dwelling wage, additional rising labour prices for companies already below stress.
Employment development has already slowed sharply forward of the tax adjustments, with ICAEW information exhibiting hiring ranges at their weakest since mid-2021.
Including to the unease is an escalating international commerce row triggered by US President Donald Trump’s resolution to impose sweeping new tariffs. Although he just lately delayed the introduction of so-called “reciprocal tariffs” by 90 days, a blanket 10 per cent import obligation stays in place, and a brand new 145 per cent tariff on Chinese language items has sparked retaliation from Beijing. China has since responded with its personal 125 per cent levy on US imports, fuelling fears of a full-blown commerce battle.
Suren Thiru, economics director on the ICAEW, stated: “These figures suggest that this year has so far been a pretty harrowing one for the UK economy, as accelerating anxiety over future sales performance, April’s eye-watering tax hike and US tariffs helped push business sentiment into ominous territory.”
The findings come because the Workplace for Price range Duty (OBR) has already downgraded its 2025 development forecast from 2 per cent to 1 per cent, warning that additional downward revisions may comply with if commerce tensions worsen.
The influence has been felt most acutely within the manufacturing sector, the place considerations over provide chains and worldwide competitiveness are intensifying. Confidence additionally declined within the property and retail sectors, each of that are extra uncovered to increased operational prices and weakening client demand.
“Economic performance was rather unbalanced,” added Thiru. “While there were some bright spots, they were overshadowed by a torrid quarter for those sectors most vulnerable to these domestic and global headwinds, most notably manufacturers.”
There was, nonetheless, a silver lining for the Financial institution of England. Companies reported rising costs on the slowest tempo because the finish of 2021, which may give policymakers confidence to start easing rates of interest. Analysts count on a 25 foundation level lower on the Financial institution’s subsequent assembly on 8 Could, lowering the bottom price from its present 4.5 per cent.
“The mood music on the economy is turning increasingly sour,” Thiru warned. “With forward-looking indicators of sales and employment activity weakening, things may get worse before they get better.”
For now, companies face a difficult interval forward, as they navigate increased prices, coverage uncertainty and a world financial system in flux.
