‘Bruised’ firms not ready for another budget battering, national economic survey reveals

The UK’s largest business sentiment survey before next month’s Budget shows most firms remain bruised - with no improvement to business sentiment.

The British Chambers of Commerce (BCC) Quarterly Economic Survey for Q3 has found confidence and investment levels remain at 2022 levels.   

Less than half of responding firms (48 per cent) are expecting increased turnover in the next 12 months, while 21 per cent expect a decrease. Meanwhile, only 21 per cent have increased investment and 25 per cent have scaled back plans.  

The data also shows tax remains the biggest concern for businesses alongside increased worries over inflation. 

The survey was carried out by the BCC Insights Unit and the UK-wide Chamber network, with the fieldwork conducted between 18 August and 15 September.

Over 4,600 businesses across the UK (91 per cent of whom are SMEs) responded online. 

Confidence among business remains flat, with only 48 per cent of responding firms expecting their turnover to increase over the next 12 months.

That compares with 49 per cent in Q2 and 58 per cent before the 2024 Budget. A fifth (21 per cent) of businesses expect turnover to worsen and 32 per cent expect no change.  

Following the employer National Insurance Contributions (NICs) rise in April, tax continues to be the biggest concern for businesses. 59 per cent cite tax as a worry, up from 56 per cent in Q2. Before last year’s Budget, only 36 per cent cited tax as a concern (Q2 2024).  

There has been a sharp rise in concern about inflation, cited by 57 per cent of firms (52 per cent in Q2), the highest level since the start of 2024. Worries about interest rates remain at relatively low levels – cited by a quarter of responding businesses (25 per cent).   

A quarter of businesses (25 per cent) say they have cut back on investment plans (broadly similar to 24 per cent in Q2).

The proportion of businesses expecting to raise their prices in the next three months remains high at 44 per cent. That’s the same level as Q2 but down from a near-historic high of 55 per cent in Q1.

Labour costs continue to be far and away the main cost pressure for firms, cited by 72 per cent of respondents (73 per cent in Q1). The issue remains the most significant in the hospitality sector (80 per cent) and the transport sector (78 per cent).  

David Bharier (pictured), head of research at the British Chambers of Commerce, said: “Ahead of the Chancellor’s statement next month, our survey shows many firms remain bruised and are not ready for another Budget battering.

“The research reveals no clear improvements to key indicators we track. For twelve months, SMEs have told us the same story: rising costs, weak investment, and little sense of relief on the horizon. 

“The Employer NICs increase has been the most widely cited source of pressure, hitting investment and pushing up prices.

“The proportion of businesses expecting to raise prices remains worryingly high, driven primarily by labour costs.

“Inflation now sits alongside taxation as a top concern. The global shift towards protectionism and tariffs has also been a major compounding factor.  

“Persistent weak sentiment this quarter may suggest that many firms have already priced in a tough Budget. But further surprise measures that hit business, like those seen in 2024, could drive confidence even lower.  

“What businesses need now is certainty and a long-term strategy, not more ad hoc policy shifts. 

“The AI revolution could be a real productivity game changer and our recent research shows that more SMEs are adopting it, but firms need the space to invest and adapt if the UK is to seize the opportunity.  

“Our message to the Chancellor ahead of the Budget is clear – no further tax rises on business. SMEs are calling for urgent action to tackle skills shortages, a bold push to boost exports, and more investment in infrastructure.

“Without that, confidence could deteriorate further, putting economic growth at risk”.