In a worrying sign for the UK economy, growth expectations among British firms have taken a sharp downturn, according to the latest data from the Confederation of British Industry (CBI). For the first time in 2024, a majority of companies anticipate declining activity in the coming months, painting a bleak picture of the nation’s economic prospects.
Plummeting Business Confidence Post-Budget
The gloomy outlook comes on the heels of Chancellor Rachel Reeves’s budget, which included substantial tax hikes amounting to £40 billion. While the government maintains that these measures were necessary to stabilize public finances and fund improved public services, the CBI’s findings suggest that the budget has dealt a severe blow to business confidence.
As we head into 2025, expectations for growth have taken a decisive turn for the worse. Our surveys suggest that anticipated activity was already weakening heading into the October budget, and the chancellor’s announcements have left businesses with even more tough choices to make.
– Alpesh Paleja, CBI’s interim deputy chief economist
The pessimistic sentiment extends across all major sectors, with services, manufacturing, and wholesale and retail reporting falling business volumes, sales, or output in the three months to November. Even more concerning, the CBI notes that firms are now planning to reduce headcount, with hiring intentions at their weakest since the height of the Covid-19 pandemic.
Calls for Urgent Government Action
In light of these findings, the CBI is urging the government to take swift and decisive action to support businesses. The organization is calling for reforms to business rates, increased flexibility in the apprenticeship levy, and incentives to boost workforce health. However, with 81% of business leaders expressing a lack of confidence in the government’s willingness to address their concerns, it remains to be seen whether these pleas will be heeded.
A Perfect Storm for London Businesses
The situation is particularly dire in the capital, where the London Chamber of Commerce and Industry (LCCI) warns of a “perfect storm” created by the budget and the forthcoming employment rights bill. A snap survey of over 200 business leaders reveals widespread concern:
- Almost 80% believe increased employer national insurance will negatively impact their business
- Nearly half predict a hiring freeze and lower staff pay in the coming years
- 38% anticipate the employment rights bill will lead to a hiring freeze, while 16% warn of job losses
The LCCI’s chief executive, Karim Fatehi, warns that businesses are “fast losing faith in the government’s economic growth strategy” and need operating conditions conducive to growth rather than measures that curtail their ability to invest, hire, and train staff.
Inheritance Tax Changes Threaten Family Businesses
Adding to the uncertainty, proposed changes to inheritance tax have left family businesses worried about their future. The CBI’s economic consultancy estimates that capping business property relief at £1 million could lead to over 125,000 job losses and a £9.4 billion reduction in economic output.
As the UK navigates a challenging economic landscape, marked by high inflation, rising borrowing costs, and trade tensions, the government faces increasing pressure to reassure businesses and create an environment that fosters growth. However, with confidence in the government’s economic strategy at an all-time low, the path forward remains uncertain.
The coming months will be crucial in determining whether the UK can weather this storm and emerge with a stronger, more resilient economy. For now, businesses across the nation are left grappling with tough choices and an increasingly pessimistic outlook.
