Business confidence fell to its lowest level in nearly five years, an advisory company indicated, as the Labour government is expected to oversee a small improvement in the UK economy this year.
BDO’s optimism index, which tracks sentiment by surveying 4,000 executives, dropped to its weakest reading since January 2021 at the end of last year due to low demand from consumers and worries over employment levels.
Researchers at the firm said the decline in confidence took place across both the services and manufacturing sectors, pointing to bosses’ worries about battling against complex regulation and a heavy tax load.
By contrast, BDO’s output index rose slightly as companies recorded more new orders, though the manufacturing sector was still set to contract.
Scott Knight, head of growth at the firm, said the latest figures showed confidence was “on the floor”.
He also put pressure on the Bank of England to respond to pressures on businesses by lowering borrowing costs, which could drive up lending and ease cost burdens.
“Decisive action like further interest rate deductions and a clear roadmap of what’s ahead is critical if [businesses are] to grow and invest,” Knight said.
Business confidence tremors
The BDO survey is the latest set of business confidence figures suggesting the UK economy’s start to the year could be tougher than expected.
The Institute of Directors’ headline sentiment figure rose slightly though employment expectations fell back.
S&P Global and the Confederation of British Industry (CBI) have also suggested business leaders were fretting about high cost loads over the coming months, with investment being channeled to technology over hiring more staff.
The Labour government has been blamed for dampening the jobs market with higher employment taxes, consecutive rises in the national living wage and the addition of red tape through the Employment Rights Bill.
Internal government analysis has suggested workers’ rights reforms could weaken employment further and lead to a jump in tribunal cases.
Business leaders are now holding out for some victories in consultations over aspects of the bill, with union boss powers and sanction terms among the issues to be decided over the coming year.