The Budget has led to falls in business confidence according to three surveys of economic activity from the Confederation of British Industry, the Lloyds Business Barometer and the Institute of Directors.
Firms expect activity to fall by around 10% in the three months to February 2025 according to the CBI’s latest Growth Indicator, the first time this year that expectations for growth have been negative.
Business volumes in the services sector are expected to decline by 13%, with business and professional services down 7% and a sharp decline in consumer services of 33%, the weakest expectations for around two years. Distribution sales are also expected to fall by 20%, while manufacturers anticipate output to rise by 9%.
Business confidence
CBI: Budget impact will lead to drop in hiring
The outlook comes as private sector activity fell again in the three months to November (-13%), falling at a faster pace than in the three months to October (-4%).
Alpesh Paleja, CBI interim deputy chief economist, said: “As we head into 2025 expectations for growth have taken a decisive turn for the worse. Our surveys suggest that anticipated activity was already weakening heading into the October Budget and the chancellor’s announcements have left businesses with even more tough choices to make.
“News that firms are planning to reduce headcount is a concern, with hiring intentions at their weakest since the tail-end of the Covid-19 pandemic. This could be an early sign of the impact of higher labour costs from the upcoming rise in employer NICs, and the uprating in the national living wage.”
Lloyds Business Barometer
Meanwhile, the latest Lloyds Business Barometer also found that business confidence fell in November 2024, with its index dipping three points to 41%, still considerably above the long-term average of 29%.
Although more than half of Lloyds’ 1,200 respondents (52%) were more optimistic about the economy than three months ago, 26% felt less positive – up from 20% in October.
Businesses did, however, show more positivity in their own trading prospects. Only 8% of firms said they expected less activity in the coming year, while 63% predicted more.
Although hiring intentions reduced for the third time in four months, 52% of respondents had plans to increase the size of their workforce, three times the number of businesses expecting to downsize (17%).
Hann-Ju Ho, senior economist for Lloyds Commercial Banking, said: “In November, the overall confidence metric fell by 3 points for the third month running. This is the lowest level since June, but still above the survey’s long-term average, which is ultimately positive from a longer-term perspective.
“These results suggest that while firms have mixed views about the economy, they see their businesses in a good place to cope with any challenges they might face. Hiring intentions, although moderating this month, haven’t fallen by much which is also positive news.”
Institute of Directors
Finally, the Economic Confidence Index from the Institute of Directors, which measures business leader optimism in prospects for the UK economy, fell for the fourth month running to -65 in November 2024, down from -52 in October.
This brings business confidence in the wider UK economy close to its record low, -69, at the onset of the Covid pandemic, and marks the second lowest reading of the IoD index since it began in 2016.
Investment intentions fell to -27, down from -15 in October, while headcount expectations continued to decline, reaching -24 in November, from -4 in October, the lowest reading since May 2020 (-33).
The IoD also asked business leaders how they expected to be affected by changes in employers’ national insurance contributions. It found that 83% of respondents expect their employer NI bill to increase. Of those, 50% expect to lessen wage increases, 44% expect to increase prices and 43% to reduce employment. A quarter expect to absorb the costs in lower margins and the same number will seek to increase productivity. More than half (57%) were planning to do at least two of the above.
Anna Leach, chief economist at the Institute of Directors, described the data as “sobering”.
“Far from fixing the foundations, the Budget has undermined them, damaging the private sector’s ability to invest in their businesses and their workforces,” she said. “The clash between government intentions to address inactivity and the sharpness of the increase in employment costs is jarring. Likewise, welcome attempts to improve the environment for investment in the UK sit at palpable odds with a significant hit to profits which will undermine private-sector investment.
“There’s now a significant risk of growth stalling across the private sector due to the extent of the reset required by business. There is particular concern being expressed by the social care and charities sectors, who feel they have no option but to reduce the services that they offer to vulnerable sections of the community. The broader SME community, as well as family businesses, feel likewise especially exposed to multiple overlapping changes in the tax system.”
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