Business and consumer confidence ebb and flow with the prevailing political and economic landscapes, both of which can irritatingly turn on a sixpence.
In recent months neither has been helped by a government flip-flopping on policies or kite-flying proposals regarding taxation.
At the start of January, the British Chambers of Commerce (BCC) published its Quarterly Economic Survey, a poll of 4600 businesses, commenting “more clouds [are] gathering over business confidence”.
In summary, the BCC found that confidence among surveyed firms has continued to weaken, with tax remaining the biggest concern. It also reported that more businesses now expect to raise prices this year.
Just 46% were expecting increased turnover over the next 12 months – down 2% on the previous three months, while 24% expected a decrease, compared to 21% the previous quarter. It’s worrying to the BCC that only 19% will increase investment, while 27% have scaled back plans.
Respondents said that market sentiment had been badly affected by uncertainty caused by the government’s pre-budget leaks, that order decisions had been delayed by it, and that the impact of the rise in employer national insurance and business rates had been painful.
In mid-January, the Institute of Chartered Accountants in England and Wales (ICAEW) released its latest Business Confidence Monitor – a survey of 1000 of its members. It also found that “business sentiment slipped deeper into negative territory amid uncertainty about the budget and rising concern about both the tax burden and regulations.” Interestingly, the ICAEW found that companies were “optimistic that domestic sales and exports growth will improve over the next 12 months.”
The ICAEW saw concerns over taxation, but also found problems with regulatory requirements and “challenges relating to customer demand”, particularly for retailers. Flat sales growth, concerns about marketplace competition, and a rise in ‘input’ price inflation fuelled by higher energy bills were other issues recorded by the ICAEW.
Then, by week four of January, another report, this time from Reuters, reckoned that “Britain’s economy has shown signs of picking up” since the budget, following months of uncertainty for employers and households.
Reuters noted: “Surveys published last week indicated that businesses had their best month in January since before Keir Starmer became prime minister in July 2024, while consumer confidence reached its highest since August that year.” Specifically, it said that retail sales had risen in December, even though “some major retailers have reported underwhelming end-of-year sales”. But that the labour market was weak after the rise in national insurance.
Reuters added that the bounce may not last. But on a note of positivity, while inflation was up, it should fall “sharply” soon, with the Bank of England interest rate probably following suit.
The Institute of Directors (IoD) was similarly upbeat in its January release of the Directors’ Economic Confidence Index. The index measures business leaders’ optimism in prospects for the UK economy, which had “ticked up by seven points in the latest reading.”
Its reasons for such logic were fourfold: That the economy may be stronger than it feels and activity could lift “as the noise around last year’s budget falls away”; that inflation is heading downward which could help consumer confidence; that the political landscape may stabilise; that the Spring Statement in March is unlikely to involve new taxes and no damaging government spin; and that global growth forecasts are stable.
Ultimately, while the confidence factor is beyond the government’s reach, there is still plenty it can do to encourage the economy. From infrastructure investment to planning reform and deregulation, and from the sensible promotion of its plans, it’s possible consumers will feel more positive this summer.