Business confidence hits three-year low

Business confidence sank into negative double-digit territory for the first time in three years amid unprecedented fears over the tax burden and weaker activity, according to the ICAEW research.

Sentiment in Q4 2025 stood at -11.1 on ICAEW’s Business Confidence Monitor (BCM) index, its lowest point since Q4 2022, having dropped from -7.3 in the previous quarter. Confidence has now fallen for six quarters in a row.

Confidence generally weakened across the fourth quarter with the index declining to -10.7 pre-Budget, before falling slightly further in its aftermath to -11.1 by the end of the fieldwork period.

A record 64% of firms said the tax burden was a growing challenge in the quarter (up from 60% in Q3), more than double the proportion (29%) since the last General Election in Q3 2024 and an eleven-fold increase from a reading of just 6% in Q3 2020. This mostly reflects both the impact of pre-Budget speculation and continued financial squeeze from recent tax hikes, including higher national insurance.

Regulation is the second biggest barrier to performance, with half of businesses (51%) hampered by this issue, the highest proportion for more than seven years. ICAEW said this increase is partly a reflection of concerns over the impact of the Employment Rights Bill.

Business confidence among non-exporters was especially downbeat, dropping dramatically from -10.0 in Q3 to -20.8 in Q4, while among exporters sentiment rose from -5.5 to -2.5. This likely reflected that domestic challenges, such as higher taxes, are more negatively impacting businesses than wider global volatility, the Institute said.

Sentiment weakened across six of the nine economic sectors surveyed and was most negative among property businesses (-23.4). This was followed by retail and wholesale (-16.6) and construction firms (-16.2). In contrast, only the IT and communications sector (+0.3) registered a positive confidence score.

Alan Vallance, ICAEW Chief Executive, said “While 2025 ended with another depressing decline in confidence, a new year calls for a new optimism. In 2026, it is incumbent on government to deliver the conditions businesses need for growth. There are amazing businesses across the UK with huge potential to grow if complexity, cost and uncertainty are reduced.

“As long as these burdens remain, achieving the government’s growth mission will remain out of reach.”

Suren Thiru, ICAEW Economics Director, said: “These findings suggest that the economic mood darkened considerably at the end of last year as a triple whammy of soaring costs, a crushing tax burden and slowing sales drove another disheartening drop in overall sentiment.

“The jobs market is bearing the brunt of these headwinds with our data indicating that companies are increasingly reacting to weaker sales and increasing costs by cutting hiring and curbing other employment related expenses, notably staff training.

“The uptick in indicators of input costs and selling prices suggests that elevated inflation remains a live risk, despite the recent slowdown in the headline CPI rate. Though the UK economy has entered 2026 in bad shape, the improvement in the forward-looking indicators of sales activity provides a silver lining as it offers hope of a modest economic improvement in the coming months.”