UK Business Confidence at Two-Year Low
Recent findings from the Institute of Chartered Accountants in England and Wales (ICAEW) reveal that UK business confidence has fallen to its lowest point since 2022. The latest index dropped to –3 in Q1 2025, down from 0.2 at the end of 2024.
Rising taxes, especially increased employer National Insurance contributions introduced in April, are a major concern—cited by 56% of accountants surveyed, the highest since the survey began. Ongoing cost pressures and weakening sales expectations are also weighing heavily on businesses.
International factors, such as renewed trade tensions under US President Donald Trump, are further clouding the economic outlook, with UK GDP growth projected to stall in 2026.
While the economy showed some unexpected growth in February (0.5%), business sentiment remains fragile, and job cuts are becoming more common—echoing levels last seen during the 2008 financial crisis.
Interest Rate Cuts Likely as Trade Tensions Mount
The Bank of England is expected to cut interest rates in May, as global economic concerns intensify following new US trade tariffs. President Trump has imposed a 10% tariff on UK exports, escalating tensions after earlier levies on steel, aluminium, and cars. Although a 90-day pause has been announced, markets remain unsettled.
With the threat of a global downturn growing, investors now anticipate three BoE rate cuts this year—up from two earlier—potentially lowering the Bank Rate from 4.5% to 3.75% by year-end. A former BoE policymaker has even urged swifter action.
The Bank’s next decision is due on 8 May. While inflation rose to 2.8% after briefly hitting the 2% target last year, slowing growth is becoming a bigger concern.
Meanwhile, BoE Governor Andrew Bailey has been nominated to lead the Financial Stability Board, amid heightened market volatility linked to US trade policy.
Rising Employment Taxes Put Pressure on Hiring
Nearly half of UK businesses are reconsidering recruitment due to recent increases in employment taxes and labour costs. From 6 April, the threshold for employer National Insurance contributions (NICs) fell to £5,000, while rates rose by 1.2 percentage points—hitting sectors like hospitality and retail the hardest.
A recent survey of 254 businesses covering over 260,000 employees found that these changes could reduce annual profits by nearly 30%. Many firms are already taking action:
27% are postponing or cancelling recruitment
19% are delaying or cancelling salary reviews
16% are making redundancies
Business leaders warn that the new tax burden makes it harder to maintain or grow workforces and may threaten pay, jobs, and long-term growth. While the changes aim to support public finances, there are growing calls for further support to help struggling sectors recover.
Government Takes Control of British Steel Plant
In a rare Saturday sitting, the UK Government passed emergency legislation to take control of British Steel’s Scunthorpe site, preventing a shutdown that would have ended primary steel production in the UK.
The new law gives Business Secretary Jonathan Reynolds broad powers to intervene at the Chinese-owned plant, including securing assets and maintaining operations. The move follows threats by owner Jingye to shut down the site’s two blast furnaces.
Although Jingye remains the official owner, the Government is now effectively running the plant. Reynolds said the goal is to attract private investment, though no buyers have yet come forward.
The legislation passed with cross-party support, though some MPs criticised the Government for acting too late. Nationalisation may still be on the table if no buyer is found.
The Scunthorpe plant employs around 2,700 people, and its future remains a key concern for both local communities and the UK’s industrial capacity.
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