UK Business Confidence Monitor: National

1. Business sentiment was recorded at -4.2 in Q2 2025, marking a fourth consecutive decline during a period of heightened global uncertainty and weakening UK activity. Confidence among exporters was particularly downbeat, falling into negative territory for the first time in almost three years.
2. Domestic sales growth slowed during the quarter and businesses have lowered their expectations about domestic and exports sales for the coming year. Concerns about customer demand and competition in the marketplace have risen sharply, while regulatory requirements continue to be the second biggest challenge for businesses.
3. The tax burden remained the greatest growing challenge in Q2 2025, with the reported rate close to the survey high, and these concerns rose to new record highs in some key sectors.
4. Expectations for employment growth in the year ahead dropped to the lowest level since Q3 2020, but businesses expect salary growth to continue to ease, adding to the more positive outlook for inflationary pressures than reported in the previous quarter.
5. Confidence declined in most sectors surveyed and sentiment remains highly unequal, with confidence most negative in Manufacturing & Engineering and Retail & Wholesale and most positive in Information & Communication and Construction.

• The Business Confidence Index contracted further into negative territory in Q2 2025, amid continued concern about the tax burden and heightened global uncertainty.
• Domestic sales growth slowed, and while businesses expect sales to improve, they have again lowered their expectations for the year ahead. Prospects for export sales have deteriorated and confidence among exporting businesses is negative for the first time in almost three years.
• Sentiment varied widely across sectors but fell in most in Q2 2025. Confidence scores in Manufacturing & Engineering and Retail & Wholesale are in deep negative territory, while IT & Communications and Construction are the most confident sectors.

Sentiment fell for the fourth consecutive quarter in Q2 2025, with the Business Confidence Index dropping to -4.2 from -3.0 in Q1 2025. It is also the third successive quarter that the index lagged the historical average (+5.0). The further dip in confidence coincides with historically high concerns about the tax burden across most sectors and slower than expected domestic and exports sales growth amid growing uncertainty over global trade.

Businesses reported that annual domestic sales growth slowed in Q2 2025, falling to 3.0% from 3.4% in the previous quarter and edging below the historical norm (3.1%). Exports sales growth remained steady, with growth maintained at 2.8% for the third consecutive quarter, though the rate of expansion is still below the historical average (3.0%). Business expectations about the year ahead have been softening in recent quarters and this pattern continued in Q2 2025, with companies projecting domestic sales growth of 4.1%, compared to 4.6% reported last quarter. Adding to the weaker domestic sales outlook, businesses also revised down their expectations for export sales for the year ahead, predicting growth of 3.5%, down from 4.0% in Q1 2025.

There were significant differences in confidence levels across the sectors surveyed and most recorded a decline in sentiment in Q2 2025. Business services (-5.5) fell into negative territory for the first time since Q4 2023, with the Bank of England Q2 2025 Agents Summary report citing that Business Services clients are managing budgets more closely and delaying spending decisions because of greater uncertainty. The sector tends to be the most optimistic large sector, with a survey average confidence score of +8.6.

However, Manufacturing & Engineering remains the least confident sector, with its score falling to -14.0 from -11.1 in Q1 2025, amid turbulent trading conditions. As consumer confidence remains weak, sentiment also dropped further in Retail & Wholesale, and a score of -11.4 in Q2 2025 marked the third consecutive quarter for the sector in negative territory. Retailers’ concern about the tax burden also rose to a new survey record high (60%). The Property sector reported an improvement in confidence but, at -6.8, is the third least confident sector, likely reflecting a challenging housing market and weak commercial demand.

IT & Communications (+8.4) remains the most confident sector despite its score easing down from +10.0 recorded in Q1 2025. Sentiment in Construction also dropped but, at +4.7, remains ahead of its historical average (+3.8) as businesses expect that government commitments to housing and new infrastructure projects will drive up demand and sales over the coming year.

• The tax burden remains the most widespread rising challenge for businesses and, despite a slight decline overall, new record highs were recorded in some sectors.
• Regulatory requirements are the second most prevalent rising challenge for businesses and remain above the historical average in Q2 2025.
• Concerns about customer demand and competition in the marketplace have increased across almost all sectors.

April’s increase in National Insurance Contributions resulted in concerns about the tax burden reaching unprecedented levels. The tax burden was reported as a growing challenge by 55% of businesses in Q2 2025, all but matching the record high of 56% reported in the previous quarter. The issue was most prevalent in the Construction sector, with 70% of businesses citing the issue as a rising concern. Despite the slight fall overall, citations in Retail & Wholesale (60%), Business Services (58%), Manufacturing & Engineering (58%) and IT & Communication (51%) each increased to historical survey highs in Q2 2025.

Regulatory concerns remain common and were reported by 43% of businesses in Q2 2025, the same proportion as the previous quarter. These challenges were most common in the Banking, Finance & Insurance sector, with 58% of businesses in the sector reporting these issues as a rising challenge, though this was still below the historical average (69%) for the sector. Construction recorded a significant increase in the proportion of companies citing these issues compared to the previous quarter, reaching a survey record high of 57%, as companies remain concerned about delays in the planning system.

With expectations about sales and exports growth easing, concern over customer demand as a growing challenge spiked in Q2 2025. The proportion of companies reporting this issue rose to 42%, the highest share since Q4 2020. At a sector level, 50% of IT & Communications companies surveyed reported this issue as a growing challenge, the highest proportion since Q3 2020 and higher than any other sector. Concern about customer demand is also elevated in Retail & Wholesale (44%) and Manufacturing & Engineering (47%) which are the least confident sectors overall.

More challenging trading conditions in Q2 2025 were evident as a larger proportion of businesses cited competition in the marketplace as a growing concern, rising to 38% from 33% in Q1 2025. This was the highest proportion since Q4 2017. The IT & Communications sector (48%) reported the greatest concern, but the issue was a more widespread concern in almost all sectors, either matching or exceeding their respective historical averages, with Energy, Water & Mining the only exception.

• Following a modest uplift in the previous quarter, annual input price inflation eased slightly in Q2 2025, with businesses expecting further moderation over the year ahead.
• Selling price inflation increased for the first time since Q2 2023 in the 12 months to Q2 2025, though companies are projecting further easing over the coming 12 months.
• All sectors apart from Energy, Water & Mining predict that input price inflation will soften over the coming year, with all sectors apart from Banking, Finance & Insurance planning to reduce the rate at which they increase their selling prices in the year ahead.

After an uptick in Q1 2025, annual input price inflation returned to its downward trajectory in Q2 2025, dropping from 3.9% to 3.7%. Businesses anticipate further moderation over the year ahead, with the 7% drop in the OFGEM Energy Price Cap likely a contributing factor to these assumptions alongside other evidence of easing cost and salary pressures. UK businesses project that input prices will rise by just 2.6% over the next 12 months, matching the historical average.

Despite easing overall, many sectors reported an uplift in input price growth in the 12 months to Q2 2025, with the largest increases observed in Property (4.5%) and Transport & Storage (4.4%). After spiking in the previous quarter, Energy, Water & Mining recorded the lowest annual price growth of any sector, with an increase of just 1.9% as wholesale gas and electricity prices declined in recent months. However, the sector is the only one where businesses expect the rate of input price inflation to increase over the coming 12 months, yet even so, the projected rise of 2.6% is consistent with the economy-wide average. The variance in the projections across sectors is relatively low, which will hopefully translate to lower cost pressures overall next year.

Following the uptick in annual input price inflation in the previous quarter, UK businesses raised the rate at which they increased their selling prices for the first time in three years, with prices up 2.3% in the year to Q2 2025. However, in the year ahead, companies plan to slow selling price inflation further to 2.0% in the year ahead.

Businesses in the Transport & Storage (3.2%) and Business Services (2.8%) sectors recorded higher annual selling price increases than all other sectors in Q2 2025, significantly outpacing both of their respective historical averages. At the other end of the scale, the Banking, Finance and Insurance sector recorded the lowest selling price increase of any sector in the year to Q2 2025, at just 0.6%, and marking the sector’s smallest rise since Q1 2022.

Increased concerns about competition in the marketplace and continued uncertainty in the global trading environment may be limiting businesses’ perceived ability to increase their selling prices. All sectors except Banking, Finance and Insurance expect to reduce the rate at which they increase their selling prices in the year ahead and, even then, this projected rise is the lowest predicted by any sector, at just 0.7%, and matching the sector’s historical average.

• Annual employment growth improved slightly in Q2 2025, increasing for the first time since Q1 2024, but growth is expected to ease in the year ahead.
• The employment outlook varies between sectors but most are planning to slow the rate at which they expand their staff levels over the next 12 months. The IT & Communications and Construction sectors are the clear exceptions to this trend and are projecting the strongest growth in the coming year.
• Annual salary inflation remains on a general downward trend, rising at a slightly slower pace in Q2 2025 compared to the previous quarter. Businesses project a further slowdown in growth over the coming year, but the projected rate remains above the historical average.

Businesses reported that employment growth picked up marginally in the year to Q2 2025, increasing their staff levels by 1.4%, from 1.2% in Q1 2025. However, with April’s increases in National Insurance Contributions and the National Living Wage, and also with the Employment Rights Bill making its way through Parliament, businesses have further reduced their projections for employment growth for the year ahead, and plan to slow growth to 1.3%, equalling the historical average.

Significant variation persists between sectors, with the Energy, Water & Mining and Property sectors recording significant employment growth, of 3.1% and 2.8% respectively in the year to Q2 2025. At the other end of the scale, employment levels were unchanged in the year to Q2 2025 in the Manufacturing & Engineering sector and contracted by 0.2% in the Retail & Wholesale sector. The past 12 months have been difficult for both sectors, each reporting a slowdown in domestic sales growth and both were particularly exposed to the 6.7% increase in the National Living Wage, due to their relatively large concentration of lower paid workers.

While the Manufacturing & Engineering and Retail & Wholesale sectors are expecting to increase their staff levels over the year ahead, their projected demand for labour is comparatively weak, with modest growth of just 0.5% and 0.4% forecast for each respectively. April’s change in the stamp duty threshold has likely affected employment growth projections in the Property sector. However, some sectors are more optimistic and are planning to raise recruitment in the year ahead. The IT & Communication and Construction sectors, both buoyed by comparatively strong domestic sales growth projections, expect to increase employment by 2.5% in the next 12 months, surpassing their respective historical averages of 1.8% and 1.2%.

As labour demand has cooled, concerns over the availability of non-management skills have also eased, with the share of companies citing the issue dropping further below the historical average (18%), to 15%. However, there was a rise in concern in the Construction sector, with more than one in four companies reporting the issue as a growing challenge in Q2 2025, as they remain concerned about the availability of suitably skilled workers to meet the expected rise in activity in the sector.

Salary inflation eased slightly compared to the previous quarter, dropping to 3.0% year-on-year in Q2 2025. Businesses in the Energy, Water, & Mining sector recorded the largest increase of any sector at 3.5%, closely followed by the Retail & Wholesale sector (3.4%) as the 6.7% increase in the National Living Wage took effect. All sectors expect salary growth will soften in the year ahead, with the softest increase expected within the Transport & Storage sector, with growth set to drop below the sector’s historical average (2.2%), at just 1.8%.

• Annual profits growth increased slightly in Q2 2025 but remains below the historical average and companies have lowered their growth expectations for the year ahead.
• Capital investment growth declined in the year to Q2 2025 and companies plan to slow the rate at which they increase their expenditure over the coming year. While R&D budget expansion increased slightly compared to the previous quarter, businesses plan to slow growth further below the historical average in the year ahead.
• Capital investment spending growth was strongest in Energy, Water & Mining in the 12 months to Q2 2025. All sectors expect to reduce their capital investment growth in the next 12 months, except for Transport & Storage and Business Services.

UK Businesses reported a slight uplift in profits growth to 2.8% in the year to Q2 2025, compared to 2.7% in the previous quarter. However, stagnant exports growth and softening domestic sales growth, alongside still high input price inflation and salary growth mean that annual profits expansion remained below the historical average (3.1%). While an improvement is anticipated for the next 12 months, companies have reduced their growth outlook for profits for the fourth consecutive quarter and now project an expansion of 4.4% compared to 4.7% forecast in the previous quarter.

High levels of uncertainty appear to be impacting investment decisions. Despite further cuts to the Bank Rate in recent months, still high borrowing costs and the elevated uncertainty in domestic and global markets are clearly leading businesses to question the return on any planned investment. As a result, annual capital investment growth slowed to 2.3% in Q2 2025, down from 2.6% in the previous quarter. Furthermore, businesses expect to slow their rate of investment growth to just 1.8% over the next 12 months, slipping below the historical average of 2.1%.

Companies have a similar view for their R&D budgets. After four consecutive quarterly declines, annual R&D budget growth picked up slightly in Q2 2025, to 1.7%, though this increase was still marginally below the historical average of 1.8%. Businesses have reduced their expectations for growth over the next 12 months to just 1.3%, down from 1.5% in the previous quarter.

At a sectoral level, increased regulation aimed at protecting UK waterways and the continued transition to Net Zero have facilitated comparatively strong capital investment growth in the Energy, Water & Mining Sector, with a rise of 4.6%. However, the majority of sectors plan to reduce their capital investment growth over the coming year, including Energy, Water & Mining. Transport & Storage is the most notable exception. Recent trade deals between the UK and the US, India and EU are likely supporting a strong investment outlook within the sector, with businesses expecting an annual increase of 3.6%, outpacing all other sectors and considerably above the sector’s 2.3% historical average. Business Services is the only other sector planning to lift investment, but a projected rate of 1.9% only matches the sector’s historical average.

• Significant disparities remain across sectors in Q2 2025 but confidence has declined in most.
• The Manufacturing & Engineering sector continued to be the most pessimistic, with confidence dropping deeper into negative territory. Retail & Wholesale, Property, Energy, Water & Mining and Business Services are also in negative territory. IT & Communications continues to be the most optimistic sector in Q2 2025, despite a modest drop from the previous quarter.
• Annual input price inflation is projected to continue to ease in almost all sectors over the next 12 months. Banking, Finance & Insurance expects the lowest input price growth and the softest rise in selling prices for the coming year.

The continued uncertainty in the global trading environment, signs of a weakening domestic economy and sustained concern over the tax burden have all been contributing factors in deteriorating sentiment for most sectors surveyed in Q2 2025. Manufacturing & Engineering companies remain particularly exposed to each of these headwinds, and confidence in the sector fell deeper into negative territory, falling to -14.0 and the lowest score since Q4 2022. Similar declines were recorded in Retail & Wholesale (-11.4) and Business Services (-5.5), while the Property (-6.8) sector remains in negative territory despite recording a modest uplift from the previous quarter.

Confidence was strongest among IT & Communications (+8.4) and Construction (+4.7) companies; however, both have declined compared to the previous quarter. Some of this decline can be attributed to the tax burden, with 51% of companies in the IT & Communications sector and 70% of those in the Construction sector citing the issue as a rising challenge in Q2 2025, nearly four times each of their respective historical averages. However, both sectors have reported slowdowns in domestic sales growth in the year to Q2 2025, prompting rising concern over customer demand and competition in the marketplace. Despite this, both sectors have the strongest growth expectations for employment and domestic sales in the coming year.

Confidence improved in the Property sector but remains in negative territory. The rush to complete purchases before April’s change in the stamp duty threshold boosted domestic sales growth in the Property sector in Q2 2025. However, housing market conditions are challenging and large increases in both annual input costs (4.5%) and salary inflation (2.9%) have hit margins in the sector, with businesses reporting that profits rose by only 0.5% in the year to Q2 2025.

Most sectors expect input price inflation to soften over the next 12 months. After reporting the lowest uplift in input price inflation in the year to Q2 2025, at just 1.9%, Energy, Water & Mining is the only sector expecting an uplift in input cost growth over the coming year, with a predicted increase of 2.6%. Easing input cost pressures are expected to translate to lower price increases across all sectors with only Banking, Finance & Insurance expecting to lift selling prices at a faster rate over the coming year, and even then, the uplift will be marginal at 0.7%, matching the sector’s historical average.

Stronger sales growth and easing cost pressures mean that almost all sectors expect profits growth to outperform their respective historical averages over the next 12 months. Businesses in the IT & Communications sector expect the strongest uplift in profits of any sector, with an increase of 5.5% anticipated. However, this projected increase is slightly down compared to the previous 12 months and a weaker outlook compared to the 6.7% growth projected in Q1 2025.

• The regional picture is mixed and while many regions have fallen further into negative territory, others recorded improvements.
• The South East and the East Midlands were the most pessimistic regions, while businesses in Yorkshire & Humber and the South West are the most positive.

There is significant disparity in sentiment between regions. The continued volatility in the global trading environment and heightened concern over the tax burden have resulted in increased pessimism in some regions. Companies in the East Midlands are now the least optimistic region in the UK, with the Business Confidence Index dropping deeper into negative territory, to -17.8 in Q2 2025. The decline in confidence observed in the Business Services sector and wider global uncertainty is reflected in the decline in sentiment reported across the Greater South East area (comprising London, East of England, South East) with confidence in all constituent regions dropping into negative territory for the first time since Q4 2022.

However, there have been improvements in some regions, most notably across the North of England, with confidence rising in Yorkshire & Humber, the North East and North West, alongside rises in Wales and the South West.

Further analysis of confidence for each region and nation is available in their respective reports on ICAEW Business Confidence Monitor.

• Sentiment is now negative territory across all company types and sizes, with exporters reporting lower confidence than non-exporters.

The recent turbulent period of high global uncertainty, signs of weakening economic growth and continued concern over the tax burden has resulted in business confidence declining further across most company types and sizes, with all now in negative territory. All UK Listed companies and Large Private companies were the most pessimistic, with Business Confidence Index scores dropping to -7.9 and -8.5 respectively.

Despite the government announcing a series of new trade deals, significant uncertainty in the global trading environment persists. As a result, Confidence among Exporters has fallen into negative territory for the first time since Q4 2022, dropping below that of Non-Exporters (-2.4), to -6.1.

• Signs that UK economic growth in Q2 will be more modest after a stronger-than-expected start to 2025, though inflationary pressures continue to ease.
• Growing evidence that the UK labour market is cooling with a drop in job vacancies, payrolled employment and slowing wage growth.
• Heightened global uncertainty due to US tariffs and increased tensions in the Middle East.

The most recent data suggests that UK economic performance may again be faltering after stronger-than-expected growth in the first quarter of the year. The ONS estimates that UK GDP rose by 0.7% in Q1 2025, following modest growth of just 0.1% in the previous quarter. However, the latest monthly data shows GDP contracting by 0.3% between March and April. While monthly GDP can be volatile and subject to change, other key indicators add to the picture of slowing economic activity. For example, retail sales volumes which increased by 1.3% in April, declined by 2.7% in May.

Meanwhile there is growing evidence that the UK labour market is cooling. Job vacancies fell by 63,000 between March and May and payrolled employment dropped by 274,000 in the year to May. Private sector regular pay growth, the Monetary Policy Committee’s preferred measure of wage inflation, eased back to 5.1% in April, from 5.5% in the three-month period to March.

The high rate of pay inflation remains a key concern for the MPC, but with annual CPI inflation easing back to 3.4% in May from 3.5% in April, the committee voted to lower the Bank Rate from 4.5% to 4.25% in May and held it at that rate following their June vote. Energy prices have been another major source of inflationary pressure, but OFGEM announced that the energy price cap will decrease by 7% on 1 July.

The Chancellor’s much anticipated comprehensive spending review was announced in early June, with health and defence the two big winners but spending plans were constrained across other departments. The government also launched its industrial strategy and its 10-year infrastructure plan, with commitments to large infrastructure projects such as the Sizewell C nuclear plant in Suffolk and the East-West rail link between Oxford and Cambridge.

Alongside domestic headwinds, there is the ongoing uncertainty associated with US tariffs and the full impact they will have. While the UK-US trade deal offers the UK some protection, the greatest risk to the UK economy relates to the potential disruption to global trade rather than through direct trade with the US. In addition, increased tensions in the Middle East have also added to the volatile global picture.

• Find out more about the BCM and its methodology
• Explore all BCM content
• Spring Statement 2025