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The economic confidence of business leaders fell in February ahead of this week’s spring forecast.
The index from the Institute of Directors (IoD), which measures business leader optimism over prospects for the UK economy, decreased to -63 in February, from -48 in January.
There were declines in several of the underlying indicators for confidence including expectations for revenue, headcount and exports. Predictions for increased costs rose to +84 from +81.
Of the factors having a negative impact on businesses, UK economic conditions (77%) was the most significant concern, with worries also around employment taxes (63%) and business taxes (54%), up from 60% and 50% respectively
Geopolitical tensions overtook global economic slowdown as the highest risk factor, while concerns about the US administration and cybersecurity also increased.
The figures come ahead of chancellor Rachel Reeves’ spring forecast, also known as the spring statement, on Tuesday. The Office for Budget Responsibility (OBR) will prepare an economic and fiscal forecast which Reeves will respond to in the statement.
Although there has been positive news for the government including stronger than expected retail sales and the largest-ever monthly budget surplus of £30.4 billion in January, there are contiuning concerns around unemployment and weak consumer confidence.
Anna Leach, IoD chief economist, said:
“After a welcome recovery in last month’s data, confidence amongst business leaders has ticked down again this month. Revenue and headcount growth expectations have softened while cost expectations have risen, as business leaders continue to grapple with pressures from ongoing rises in employment costs.
“Taxes and regulatory compliance remain prominent concerns, and a timely reminder of the importance of the government’s deregulatory agenda and the crucial need for business-friendly tax reform. Meanwhile the latest tariff developments have undoubtedly contributed to geopolitical tensions jumping up the risk agenda in board rooms.
“As we approach the spring statement, the quietness of the newsflow around policy announcements has provided some welcome stability. But the need for swifter delivery of growth-friendly policies is increasingly urgent. UK businesses face intense pressures: rising costs, worsening late payments, persistent pricing pressures.
“As we move through the year, momentum on planning reform, defence spending and industrial strategy will be critical. Above all, firms need a coherent growth strategy that clearly sets out priorities and trade-offs — providing the clarity and certainty required to anchor confidence.”
