The largest survey of business sentiment since April’s Employer National Insurance rise, the British Chambers of Commerce Quarterly Economic Survey for Q2, shows confidence remains weak.
While price rise expectations have eased back from near historic highs in Q1, tax remains the biggest concern cited by businesses.
Only a third say domestic sales have grown over the last three months.
The survey was carried out by the BCC Insights Unit and the UK wide Chamber network after the National Insurance rise came into force, with the fieldwork conducted between May 12 and June 9. Over 4,500 businesses across the UK (93% of which are SMEs) responded online.
Business confidence remains subdued
Levels of confidence among businesses remain weak, with only 49% of respondents expecting their turnover to increase over the next 12 months. That’s up only slightly from 48% in Q1.
This is the second lowest figure since the aftermath of the mini budget in late 2022. A fifth (20%) of businesses expect turnover to worsen and 31% expect no change.
Confidence levels remain lowest in the hospitality sector (33%) and retail (44%), showing the continued struggles these sectors face.
Profitability confidence has improved slightly but remains low. 41% of businesses expect profits to increase over the next year (39% in Q1), while 28% expect them to worsen (32% in Q1).
Fewer businesses planning to increase prices
The proportion of businesses saying they expect to raise their prices in the next three months stands at 44%, down from a near-historic high of 55% in Q1.
This suggests a moderation in new price rises after businesses made adjustments ahead of the NICs increase. Just over half (53%) say their prices are likely to remain the same, and only 3% are expecting them to decrease.
Labour costs continue to be far and away the main cost pressure, cited by 73% of respondents – the same as the previous quarter. The issue is most significant for transport and logistics businesses (88%) followed by the hospitality sector (83%).
Tax remains the biggest concern as NI rise bites
Following the Employer NI contribution rise at the start of April, tax continues to be the biggest worry for businesses, although concerns have eased slightly. 56% cite tax as a worry, down from 59% in Q1. This quarter’s figure is the third highest on record, following the previous two quarters.
Concern about inflation also remains high among businesses – 52% compared with 53% in the previous quarter. Worries about interest rates continue to fall with 24% citing them in Q2, down from 28% in Q1.
No significant improvement in business conditions
The percentage of respondents reporting increased domestic sales has shown no noticeable improvement, 32% compared with 31% in Q1. 42% reported no change and over a quarter (26%) said they had seen a decrease in sales.
Hospitality firms were the most likely to have seen a fall in sales (36%) followed by those in the retail sector (34%).
Over a quarter of businesses (26%) report an increase in cash flow over the last three months, up from 21% in the previous quarter. 30% report a fall in cash flow (down from 33% in Q1), while for 45% cash flow remained the same.
Most businesses struggling to invest
As businesses face increased cost pressures, nearly a quarter, 24%, say they have cut back on investment plans (compared with 26% in Q1). 55% say their investment strategy has remained the same, while only 21% have increased their plans.
The issue is more marked in certain sectors, with 39% of hospitality businesses and 32% of transport businesses reporting a scaling back of investment plans.
Suzanne Caldwell, managing director of Cumbria Chamber of Commerce, said: “The rising cost of doing businesses means confidence levels remain at their lowest levels since 2022.
“And business sentiment in Q2 remains fundamentally subdued, following last autumn’s tax increase announcements and the more recent introduction of global tariffs.
“But it’s encouraging to see a drop in the number of businesses planning to raise prices. Any signs of inflationary pressures easing is good news for business and the wider economy. But prices remain volatile.
” And in many cases the change in intention will reflect that they have already increased prices. Inflation is likely to remain volatile in the short term, as any escalation in global conflict could trigger renewed shocks to commodity and shipping prices.
“The Prime Minister acknowledged at the BCC’s Global Annual Conference that business has been asked to shoulder a huge tax burden, and thanked the business community for that. We now need the Government to rule out any further business taxes in this year’s Budget and stick to the PM’s commitment in his Conference speech to getting behind business.
“Businesses have welcomed the series of long-term strategies from Government in recent weeks, all designed to drive forward economic growth. Chambers’ research shows businesses are stuck in a rut and more needs to be done at pace by ministers to turbocharge the economy and boost business confidence.
“The chamber network is urging ministers to work with us to implement these ideas.
“Businesses are clear – they want their costs reduced, regulation reformed, and skills barriers removed. They’re operating in an increasingly unpredictable world and SMEs in particular have limited capacity to absorb further disruption.
“A meaningful improvement in business conditions will depend on a roadmap to ease the tax and admin burden, de-escalation of geopolitical tensions, implementing improvements to the UK-EU trading deal, and further mitigation of US tariffs.”
