UK businesses are facing a difficult year as confidence plummets in the wake of rising domestic tax burdens and intensifying global trade tensions, according to new data from the Institute of Chartered Accountants in England and Wales (ICAEW).
The ICAEW’s Business Confidence Monitor, a key gauge of corporate sentiment, dropped to -3 in the first quarter of 2025—down from 0.2 in the previous quarter. This marks the lowest reading since the end of 2022 and reflects growing concern across sectors over spiralling employer costs, inflation, and subdued demand.
The sharp downturn follows the UK government’s recent decision to raise employer national insurance contributions by £25 billion. The policy, announced by Chancellor Rachel Reeves in October 2024 and implemented from April 6, coincided with a 6.7% increase in the national living wage. Both measures have significantly increased labour costs for businesses already navigating economic uncertainty.
Employment growth has slowed notably in anticipation of the tax changes, with hiring levels now at their weakest since mid-2021, according to ICAEW data.
Adding to the sense of instability is a worsening global trade landscape, sparked by US President Donald Trump’s imposition of sweeping new tariffs. While a 90-day delay was granted for the rollout of his “reciprocal tariff” policy, a blanket 10% import duty is already in place. A new 145% tariff on Chinese goods has triggered retaliation from Beijing, which imposed its own 125% tariff on US imports, raising fears of a broader trade war.
“These figures suggest that this year has so far been a pretty harrowing one for the UK economy,” said Suren Thiru, Economics Director at the ICAEW. “Anxiety over future sales, the April tax hike, and the escalating tariff dispute have pushed business sentiment into ominous territory.”
The Office for Budget Responsibility (OBR) recently downgraded its GDP growth forecast for 2025 from 2% to 1%, warning that further downward revisions may follow if trade tensions escalate.
The manufacturing sector has been particularly hard hit, with confidence shaken by concerns over international competitiveness and disrupted supply chains. The property and retail sectors also reported declining confidence, due to exposure to high operating costs and weakening consumer demand.
However, there is a glimmer of hope for monetary policy. Businesses reported the slowest pace of price increases since late 2021—potentially giving the Bank of England room to cut interest rates. Analysts are predicting a 25 basis point reduction at the Bank’s next meeting on May 8, which would lower the base rate from 4.5% to 4.25%.
Still, the overall outlook remains bleak. “The mood music on the economy is turning increasingly sour,” Thiru warned. “With forward-looking indicators of sales and employment activity weakening, things may get worse before they get better.”
