Business leader confidence in economy falls

Business leaders’ confidence in the prospects for the UK economy fell to levels not seen since the pandemic during November, according to analysis by the Institute of Directors (IoD).

The institute’s Economic Confidence index fell to -65 in November, down from -52 during October. This marks the fourth consecutive monthly fall and is the second lowest reading the index has seen since its launch in 2016, with only the -69 seen in April 2020 coming in lower, at the onset of the Covid pandemic, and marks the second lowest reading of the Index since it began in July 2016.

This drop in confidence is also reflected in the underlying indicators with Investment intentions fell to -27, down from -15 in October, the lowest reading since May 2020 (-43). Headcount expectations continued to decline, reaching -24 in November, from -4 in October, the lowest point since May 2020 (-33). Export intentions declined to +2 in November, from +6 in October – the lowest reading of this indicator since its introduction in April 2023.

Revenue expectations fell to +4 in November from +15 in October, the lowest reading since October 2020 (-8) whilst wage expectations dropped to +21 from +47 in October, its lowest reading since November 2020 (+19).

Looking at the quarterly assessment of factors having a negative impact on business leaders’ organisations UK economic conditions were the most significant concern for members, as they were in August, but the degree of concern has risen: 73% felt that economic conditions were having a negative impact on their organisation in November 2024, up from 56% in August.

Employment tax has replaced skills and/or labour shortages as the second biggest concern, cited by 67% of members, almost double the proportion in August (34%). Although business tax remains in third place, in November the proportion of members citing this as having a significant negative impact has jumped to 51% from 41% in August.

Anna Leach, Chief Economist at the Institute of Directors, said “This is a sobering set of results. As businesses continue to absorb the consequences of the Budget for their business plans, confidence has continued to plummet and is approaching the lows reached at the onset of the Covid pandemic. Far from fixing the foundations, the Budget has undermined them, damaging the private sector’s ability to invest in their businesses and their workforces.

“The clash between government intentions to address inactivity and the sharpness of the increase in employment costs is jarring. Likewise welcome attempts to improve the environment for investment in the UK sit at palpable odds with a significant hit to profits which will undermine private sector investment. There’s now a significant risk of growth stalling across the private sector due to the extent of the reset required by business. There is particular concern being expressed by the social care and charities sectors, who feel they have no option but to reduce the services that they offer to vulnerable sections of the community. The broader SME community, as well as family businesses, feel likewise especially exposed to multiple overlapping changes in the tax system.

“We recognise the need to fix the public finances, but we are concerned that the extent of the hit to the private sector, in combination with how inheritance tax and business property relief reforms are impacting certain types of businesses, will serve to undermine growth and ultimately the public finances too. We retain concerns regarding the forthcoming changes to employment regulations, which will substantially increase costs for business. We urge the government to look for opportunities to ameliorate the negative impacts of the Budget and other policy measures, so that businesses are able to deliver the jobs and investment needed. The flurry of announcements expected in the Spring – spanning industrial strategy, infrastructure and tax reform – will be an important opportunity to reposition the growth narrative more positively.”