UK Business Confidence Recovering Strongly But Challenges Remain

Confidence among UK businesses has climbed to the highest level since Rachel Reeves’ first budget last October, new research from The Institute of Directors’ (IoD) suggests.  

It’s good news, but leaders warn the fragile recovery could be undermined by further tax hikes in the Autumn. 

The IoD’s index of optimism rose to -61 in August, up from -72 in July. So that means it has recovered from a record low, which is encouraging, but pessimism is still the prevailing mood. The IoD said directors were now less worried about investment and headcount, with exports expected to expand despite disruption to global trade from US tariffs. 

Hiring and investment intentions have edged higher, offering some relief to Reeves after criticism of her £25 billion national insurance rise on employers, which many argue has weakened the labour market. 

Smashing targets  

A separate survey of 500 mid-sized businesses by consultancy BDO found 74% had already exceeded their growth targets for 2025, driven by stronger consumer demand and productivity gains from AI adoption. 

Anna Leach, chief economist at the IoD, cautioned that the rebound in sentiment remained tentative: 

Business leader confidence has picked up slightly from July’s record low, but only to levels seen after the 2024 budget and during the early pandemic. Hiring and investment expectations continue to swing back and forth as April’s tax rises ripple through the economy, while cost pressures remain stubbornly high. 

Nearly half of IoD members (47%) said the heavier tax burden had damaged their finances, while 59% complained specifically about the national insurance rise. More than three-quarters (76%) said they remained concerned about the wider economy despite August’s improvement. 

Encouraging signs  

“There’s no doubt that these figures show how far we have to go to restore confidence in the UK economy,” says Paul Beare. “But with that said, it’s really encouraging that the line on the optimism graph is heading back up again.” 

Certainly we’re seeing clients ramping up their activities – whether that’s taking on new staff, investing in new tech, or branching out into new markets, levels of activity in the UK are definitely strong.

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