British business confidence dropped sharply in November. It was at its lowest level since January 2023.
The announcement comes after Labour’s heavy-handed Autumn Budget which caused significant concern across all industries.
BDO’s report shows that the Optimism Index has fallen by 5.81 to 93.49, marking the largest monthly drop since August 2021.
Budget measures have weakened confidence
In both the manufacturing and service sectors, there was a decline in confidence.
BDO attributed the sharp drop to business’s immediate reaction to budget measures. These included increased National Insurance contributions (NI) and a hike in National Living Wage.
BDO’s report highlights the current challenges facing businesses, such as rising costs, declining orders and pressure on labor markets.
The report said that while businesses were hopeful of interest rate reductions early in the next year, the cost pressures could offset any potential benefits and leave the outlook unclear.
Job vacancies decline at fastest rate since pandemic
The UK’s job market fell at its fastest pace since the outbreak of pandemic in November, further aggravating concerns.
KPMG and The Recruitment and Employment Confederation’s (REC) report revealed that the demand for permanent staff had experienced a sharp and accelerated drop.
KPMG CEO Jon Holt said that businesses are reviewing their hiring plans due to increased costs. This has contributed to a slowdown in the recruitment process.
Retailers warn about multi-billion pound costs
Retailers have been particularly concerned by the National Insurance increase. The British Retail Consortium estimates that it will cost this sector PS2.3 billion (2.93 billion dollars) per year from April 2025.
Tesco’s National Insurance Bill will increase by PS1bn over the next 4 years, while Sainsbury’s Chief Executive Simon Roberts stated that its National Insurance was expected to rise more than 50% annually as PS140m in extra charges were added.
Domino’s Pizza, a pizza franchise company in the United States, announced on Monday that the changes to National Insurance Contributions and National Minimum Wage had “significantly” increased the labour costs for its partners and itself.
The company revealed that, even though it has identified specific plans for mitigating the financial impact of the increase, they expect the cost per year to rise by around PS3 million from 2024-25.
Following the announcement, shares in Domino’s Pizza dropped by 11.4p or 3% to 340.6p despite a five-year contract with franchisees.
Last month, Bank of England Governor Andrew Bailey reiterated the concerns of employers by warning that increased costs might force businesses into cutting jobs.
Mixed economic prospects
A bleak picture of the UK’s economy is created by the dual challenge of a cooling in demand coupled with rising costs.
Although interest rates could be adjusted, it appears that the immediate effects of budgetary measures outweigh any potential benefits.
In a slowing economic climate, businesses are now faced with the difficult task of maintaining workforce while balancing operating costs.
The ICD published the following article: UK Business Confidence at its lowest level in two years due to budgetary changes weighing on key decisions.
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