Business confidence remains low as cost pressures intensify

The IoD Directors’ Economic Confidence Index, which measures business leaders’ optimism about prospects for the UK economy, fell marginally to -63 in July 2026, down from -61 in June.

Business leader confidence in their own organisations also fell, to -2 in July from +7. The majority of the underlying indicators also declined; revenue expectations fell to +9 from +11 – the lowest reading in 2026. Headcount expectations fell to -7 from -3 and investment intentions fell to -13 from -4.

Export expectations fell to +3 from +7, whilst cost expectations remained unchanged at +83.

Anna Leach, Chief Economist at the Institute of Directors, said “Our latest data signals a further modest deterioration in sentiment and trading conditions in July. Overall confidence in the economy has drifted down a little further amongst business leaders, continuing its trend of weakness and volatility since the 2024 Budget. Meanwhile, revenue expectations have dropped to their weakest level in 2026, and alongside elevated costs, means the squeeze on margins has intensified.”

:Business leaders report that consumer spending is under pressure from weak sentiment and price pressures, while demand generally remains cautious. Businesses also note that policy uncertainty has worsened as the UK undergoes a further change in political leadership. Looking toward the Autumn, there’s a risk that cost pressures rise further in light of renewed conflict in the Middle East, reinforcing the squeeze on households and businesses.

“Driving a meaningful and sustainable improvement in growth must remain the government’s priority. Many policies are moving in the right direction – including devolution and planning reform. In these areas, the issue is speed, breadth and consistency of action. But in other areas, more work is needed. The key asks from business are that we move away from constant speculation on tax – particularly those taxes that affect the investment environment in the UK – and that the government continues to work with business to ensure that the Employment Rights Act delivers for the economy.”