Business leaders ‘remain depressed’ as employment costs spiral
Business leaders remain disheartened about their organisations and the wider UK economy amid an escalating global trade war and higher employment costs, according to a new survey of over 600 directors.
Confidence among company directors collapsed after Labour took office last year.
Now the Institute of Directors (IoD)’s latest update to its monthly survey suggests that the Labour government’s policies have failed to lift spirits.
Just over a third of directors said they were optimistic about their organisations while far fewer – around one in ten – were positive about the wider UK economy.
The Confidence Index has now been negative for seven months in a row and still sits close to pandemic lows.
Most business leaders attributed their low expectations to higher labour costs.
Firms are set to pay higher national insurance taxes from later this week as Chancellor Rachel Reeves announced the rate paid by employers would be raised to 15 per cent and thresholds would be lowered to £5,000.
A hike to the national minimum wage is also set to put further pressure on employment costs this week.
A large number of directors said supply chain inflation was particularly concerning as President Donald Trump prepares to inflict wide-ranging 25 per cent tariffs on 2 April.
Trump has already announced that he will impose a 25 per cent tax on car imports, impacting its trade with the UK worth more than £6bn.
Higher energy costs, which are set to rise from today, were also cited as a cause for concern for a third of business directors.
“The confidence of business leaders across the UK remained depressed in March, with this month’s improvement still leaving the index around Covid pandemic lows,” said IoD chief economist Anna Leach.
The Spring Statement is now behind us and we breathe a sigh of relief that there were no nasty surprises.
“With global trade uncertainty elevated ahead of ‘Liberation day’, inflationary pressures up, and financial markets highly reactive, the pressures on growth show no signs of easing.”
Directors were slightly more positive in March than in previous months, while wage growth hopes are quickly growing.
More company directors believe their headcounts will be smaller in the next 12 months, however.
Leach urged the government to announce more pro-business policies to reverse low business confidence.
“The forthcoming Spending Review and accompanying Industrial Strategy represent key opportunities for the government to reinforce growth-positive policy measures, particularly through prioritising major infrastructure projects and de-regulation.
“But there is still work to be done to ensure that the costs of employment do not impede the UK’s growth ambitions.”
The survey of company directors also suggested that small and medium-sized business (SME) leaders are more pessimistic about the UK economy than at large companies.
The last time large business executives were more pessimistic than SME directors was last November.