ICAEW’s Business Confidence Monitor (BCM) for Q1 2025 – one of the largest and most comprehensive surveys of business activity – put confidence at -3 on the index, the weakest reading since Q4 2022 and down from 0.2 in the previous quarter. Historically, negative confidence readings have generally coincided with particularly difficult periods for the UK economy, including the major inflation shock in 2022 following Russia’s invasion of Ukraine.

The notable fall in confidence was likely driven by record high tax worries, rising cost pressures and a slowdown in expected domestic sales growth, ICAEW said.

Over half of businesses (56%) polled in Q1 said the tax burden was a growing challenge, a new record for the survey and a considerable increase on the previous all-time high of 41% in Q4 2024. This was also three times higher than the historic average and a seven-fold increase over the past four years, ICAEW said. [3]

Weaker economic conditions mean businesses expect domestic sales growth in the year ahead to drop to its lowest level since Q3 2022, despite an uptick in Q1. [4]

The survey also found significant differences in confidence across the economy, with sentiment negative in six of the 11 sectors surveyed. Manufacturing and engineering firms were hardest hit with sentiment dropping to -11.1 on the index, followed by property (-10.3) and retail and wholesale (-8.4). In contrast, confidence rose in three sectors: IT and communications (10), construction (7.8) and energy, water and mining (6.9).

While the temporary scaling back of US tariffs has provided some relief, UK companies are still facing major uncertainty. ICAEW therefore urges the government to work with its trading partners to further calm the global trade system, while also prioritising measures to boost the wider business environment. 

Alan Vallance, ICAEW Chief Executive, said:

“These findings reveal a state of despondency among businesses as they stave off a blizzard of extra outlays, including the rise in national insurance. Meanwhile, the US tariff announcements have loaded on exceptional uncertainty and the very real prospect of higher costs and global economic woes.

“Businesses are the catalyst for growth, but prosperity for some of them remains a pipe dream as long as these barriers remain. Tax worries have never been so prominent, causing record levels of distress for our members for the second quarter running.

“It’s time for the government to step up. Businesses are being targeted on multiple fronts, and the Prime Minister and Chancellor must do their best to diffuse global trade tensions and provide the breathing space for business to prosper. Only then, with the proper foundations in place, will they stand any chance of delivering much-needed economic growth.” 

Suren Thiru, ICAEW Economics Director, said:

“These figures suggest that this year has so far been a pretty harrowing one for the UK economy as accelerating anxiety over future sales performance, April’s eye-watering tax hike and US tariffs helped push business sentiment into ominous territory.

“Economic performance was rather unbalanced with improvements in some segments of the economy overshadowed by a torrid quarter for those sectors most vulnerable to these domestic and global headwinds, most notably manufacturers.

“Our data suggests that firms are currently responding to intensifying cost pressures with only limited price rises, but at the expense of more restrained recruitment and weaker spending on staff training, which will hinder productivity.  

“The mood music on the economy is turning increasingly sour and with forward-looking indicators of sales and employment activity weakening, things may get worse before they get better.

Cracks appearing in UK labour market

Employment growth slowed to 1.2% in Q1, the lowest rate since Q2 2021 and down from 1.7% in Q4, the BCM found. 

The survey found there was also notable variation between sectors with employment contracting by 0.6% within the IT and communications sector, the weakest outturn since Q2 2010. In contrast, employment growth within business services (2.4%) was double the national average. 

Furthermore, employment growth expectations for the year ahead have weakened to its slowest rate since Q4 2020, though still above the growth of 1.2% achieved this quarter. This is likely in response to weaker expected domestic sales growth and April’s increase in employment costs, ICAEW said. 

These factors also likely caused growth in staff training budgets to fall to the lowest rate since Q3 2021, the Institute added. [5]

Inflation pressures building

Input costs increased in Q1, the first rise for nearly two years. Growth expectations for the coming 12 months have also gone up from the previous quarter. [6]

Despite rising cost pressures, selling price inflation slowed to its lowest level since Q4 2021 and is expected to ease further over the next 12 months, businesses reported.

ENDS 

Notes to editors: 

The full report is available on request.

1. The Business Confidence Monitor (BCM), which is one of the largest and most comprehensive quarterly surveys of UK business activity, began in 2004. 
2. 1,000 Chartered Accountants based in the UK responded to a telephone survey between 10 February and 27 March 2025. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions. 
3. The historic average of businesses citing the tax burden as a growing challenge is 17%, and troubled just 8% of companies in Q1 2021.
4. Domestic sales growth rose by 3.4% in Q1, up from 3.2% in the previous quarter.
5. Staff budgets increased by 1.1% in Q1 2025, the lowest growth since Q3 2021. 
6. BCM measure of input costs increased from 3.7% to 3.9% in Q1. Businesses expect input costs to rise by 3% in the next 12 months compared to their previous projection of 2.7%.

Business Confidence Index methodology - The Business Confidence Index is calculated from the responses to the following:
“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”  
A score was applied to each response as shown below, and an average score calculated:

Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.

As one of the largest and most comprehensive quarterly surveys of UK business activity. BCM is closely watched and referenced by key policymakers, including HM Treasury, the Bank of England (including being referenced in their Monetary Policy Report), British Business Bank and the Small Business Commissioner.