Cost concerns rise to record levels among business leaders

The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, dropped back to -64 in February 2025, from -59 in January. Business confidence remains at historically depressed levels, just above the recent nadir of -65 in November 2024 and close to the lows reached during Covid.

Business leader’s confidence in their own organisations also dropped back from +6 in January to +2 in February.

Underlying indicators included, cost expectations whichrose from +83 in January to +87 in February, the highest figure on record. Headcount expectations dropped from -9 to -16 whilst investment intentions fell from -14 to -18. Meanwhile wage expectations dropped from +41 to +38.

Looking at the quarterly assessment of factors having a negative impact on business leaders’ organisations UK economic conditions remained the most significant concern for members, with the degree of concern also remaining the same: 73% felt that economic conditions were having a negative impact on their organisation in February 2025, the same proportion as in November 2024.

Employment taxes and business taxes also remain the second and third largest concerns, cited by 64% and 50% respectively, slightly up from 67% and 51%.

Compliance with government regulations (33%) and skills/labour shortages (31%) are the next most significant concerns, again as they were in November. However, there has been a slight drop in the proportion of members citing these, from 38% and 37% in November respectively.

Anna Leach, Chief Economist at the Institute of Directors, said “Directors’ confidence has dipped again this month, returning to around its recent post-election lows. Amidst downgrades to UK growth forecasts, businesses remain concerned about the health of the UK economy, as well as tax and regulatory burdens. Our engagement with business leaders reveals that they’re increasingly worried about inflation, the cost of energy and the repercussions of policy decisions in the States. As businesses adjust to an evolving cocktail of costs and risks, around half are expecting to reduce employment in response to rising costs, with price increases also being considered. Meanwhile, investment intentions have dipped further, as businesses expect tax increases to hit their bottom line more than previously.

“As headwinds to UK growth ratchet higher, strong relationships with our major trade partners will be crucial for navigating choppy geo-political waters. Closer collaboration on defence with our European neighbours should elevate the opportunity to reset the UK’s relationship with the EU. But the government’s strongly vocalised intent to prioritise growth needs more urgently to be matched by action to address the cost pressures facing business. As energy prices push up once more, the industrial strategy is an opportunity to map a realistic path to net zero that also addresses the UK’s uncompetitive industrial energy prices.”

Which of the following, if any, are having a negative impact on your organisation?

UK economic conditions	73.1%
Employment taxes	63.6%
Business taxes	49.6%
Compliance with government regulation	33.3%
Skills shortages and/or labour shortages	30.7%
Cost of energy	29.5%
Global economic conditions	28.5%
Trading relationship with the EU	22.7%
Difficulty or delays obtaining payment from customers	19.7%
Transport cost/speed/reliability	15.7%
Cost/availability of finance	15.4%
Broadband cost/speed/reliability	10.9%
Supply chain disruption	7.4%
None	2.3%

Will the announced changes to employer National Insurance in the Autumn Budget increase or reduce your employer National Insurance bill?

	February 2025	November 2024
Increase	82.5%	82.7%
No impact	9.9%	11.5%
Reduce	2.2%	2.0%
Don’t know	1.6%	1.3%
N/A	3.8%	2.5%

You said the changes will increase your employer National Insurance bill. How do you plan to respond to the resulting higher costs of employment?

	February 2025	November 2024
Reduce employment	47.1%	42.7%
Increase prices	40.9%	44.1%
Lessen wage increases	38.6%	50.1%
Absorb the increase in lower margins	29.6%	24.5%
Seek to increase productivity	24.9%	24.5%
Other	6.5%	2.3%