Business confidence increases despite taxes and economic climate concerns

The IoD Directors’ Economic Confidence Index, which measures business leaders’ optimism in prospects for the UK economy, rose to -61 in August 2025 from -72 in July.

The August reading of the Index takes us back to the sort of levels seen immediately after last year’s Budget, having dropped to its worst reading on record in July. Business leader confidence in their own organisations also rose, to +1 in August 2025 from -9 in July.

This improvement is reflected in the underlying indicators:

• Investment intentions rose to -8 in August, from -27 in July.
• Headcount expectations rose to -4, to -23.
• Wage expectations dropped to +42, from +65.
• Export expectations rose to +5, from fell to -4.
• Revenue expectations rose to +12, from -8.
• Cost expectations remained steady (+85, from +84).

The factors having a negative impact on businesses (asked quarterly):

• UK economic conditions (76%) remains the most significant concern, up from 67% in May 2025.
• Employment taxes (remained at 59%) and business taxes (47%, from 45%) also continue to be of significant concern.
• Global economic conditions fell from 41% in May to 32% in August, and skills/labour shortages fell from 36% to 31%.

Of the global risks that are most concerning for business leaders (asked quarterly):

• The top three were unchanged in ranking: global economic slowdown (selected by 60%, from 62% in May 2025), rising geopolitical tensions (48%, from 52%) and cybersecurity risks (44%, from 47%).
• There have been reductions in the perceived risks associated with a global trade war (27%, from 40%) and the Trump administration (32%, from 38%).
• The misuse of artificial intelligence continues to rise as a factor (30%, from 24%).

Finally, business leaders indicated that the regulations that posed the biggest blockers to growth for their organisation were employment and workplace regulations (45%), and trade and customs requirements (17%).

Anna Leach, Chief Economist at the Institute of Directors, said “Business leader confidence has picked up slightly from July’s record low, but only to levels seen after the 2024 Budget and during the early pandemic. Hiring and investment expectations continue to swing back and forth as April’s tax rises ripple through the economy, while cost pressures remain stubbornly high. It comes as little surprise to see taxes and the wider economic climate dominating concerns amongst business leaders.

“As we head towards another challenging Budget, the government should seize the chance to unlock growth through smarter deregulation. Leaders tell us the biggest barriers they face are in employment and trade. Here lies the tension in the government’s growth agenda: while trade policy has focused on reducing frictions and opening opportunities, its employment policies risk moving in the opposite direction. Higher costs and rising regulatory risks threaten to undermine ambitions for jobs and growth. Meanwhile ongoing tax rumours further damage confidence. We urge the government to unleash a more coherent and consistent economic plan for the UK, focussed on easing the cost of doing business.”