Britain’s private sector is preparing for a downturn over the coming quarter as rising costs, regulatory pressures and fears of new tax increases weigh heavily on business confidence.
The latest monthly survey from the Confederation of British Industry (CBI) shows bosses expect to scale back hiring and investment across all major industries. The business lobby group warned Chancellor Rachel Reeves against piling more pressure on firms in her autumn Budget, urging instead a focus on easing costs and boosting competitiveness.
The findings mark a full year since the CBI last recorded a positive outlook for future expectations, reflecting deep disillusionment among corporate leaders since Labour’s election victory last summer. Reeves’s £40 billion package of tax rises, unveiled in October 2024, continues to shape sentiment.
Responses from 877 firms revealed that consumer services face the sharpest decline, while retail, wholesale, manufacturing and professional services sectors are also bracing for slowdowns. Businesses cited the combined strain of 3.8% inflation in July, higher National Insurance contributions, increases to the minimum wage, and regulatory changes such as Angela Rayner’s Employment Rights Bill. The legislation, which is nearing final approval in the House of Lords, strengthens workplace rights but has drawn criticism for raising costs and limiting flexibility.
“Firms are already shouldering the cost of the Government’s fiscal decisions,” said Alpesh Paleja, CBI economist. “The autumn Budget must not add to that strain with further tax rises that risk undermining investment and growth. If the Government wants to unlock growth, it must cut the cost of doing business, give firms tax certainty, and rethink the Employment Rights Bill.”
The Budget will be Reeves’s second since taking office and comes amid forecasts of a £50 billion shortfall in the public finances. Economists expect new measures to close the gap, with rumours of additional tax hikes fuelling unease in boardrooms.
The Institute of Directors (IoD) echoed the CBI’s concerns in its latest confidence tracker. While sentiment improved slightly from last month’s record low, levels remain near those recorded during the first Covid lockdown and the fallout from Liz Truss’s mini-Budget. IoD chief economist Anna Leach said business leaders planned to cut back on pay, headcount and investment.
“Higher costs and rising regulatory risks threaten to undermine ambitions for jobs and growth,” she said. “Ongoing tax rumours further damage confidence. The Government must present a more coherent and consistent economic plan, focused on easing the cost of doing business.”
The Treasury defended its record, insisting Labour remained pro-business. A spokesperson pointed to job creation, recent trade deals with the EU, US and India, and reforms to business rates. “The tax decisions we took at the Budget last year mean we can deliver on the priorities of the British people, from investing in the NHS to boosting wages and cutting waiting lists,” the statement said.
With confidence subdued, Reeves faces mounting pressure to restore optimism in the private sector when she delivers her autumn Budget. Her challenge will be to balance the need to close the fiscal gap with measures to encourage investment and growth.
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