UK businesses are grappling with what’s being described as a “harrowing” year, as confidence slumps in response to rising domestic tax burdens and mounting global trade tensions, according to new research from the Institute of Chartered Accountants in England and Wales (ICAEW).
The ICAEW’s closely watched business confidence monitor fell to minus 3 in the first quarter of 2025, down from 0.2 in the previous quarter, marking the lowest reading since late 2022. The drop reflects growing concern over the UK’s rising employer taxes, inflationary pressures and subdued domestic demand.
The downturn in sentiment follows the government’s recent decision to raise employer national insurance contributions by £25 billion—announced by Chancellor Rachel Reeves in October and implemented on 6 April. This came alongside a 6.7 per cent rise in the national living wage, further increasing labour costs for businesses already under pressure.
Employment growth has already slowed sharply ahead of the tax changes, with ICAEW data showing hiring levels at their weakest since mid-2021.
Adding to the unease is an escalating global trade row triggered by US President Donald Trump’s decision to impose sweeping new tariffs. Though he recently delayed the introduction of so-called “reciprocal tariffs” by 90 days, a blanket 10 per cent import duty remains in place, and a new 145 per cent tariff on Chinese goods has sparked retaliation from Beijing. China has since responded with its own 125 per cent levy on US imports, fuelling fears of a full-blown trade war.
Suren Thiru, economics director at the ICAEW, said: “These figures suggest that this year has so far been a pretty harrowing one for the UK economy, as accelerating anxiety over future sales performance, April’s eye-watering tax hike and US tariffs helped push business sentiment into ominous territory.”
The findings come as the Office for Budget Responsibility (OBR) has already downgraded its 2025 growth forecast from 2 per cent to 1 per cent, warning that further downward revisions could follow if trade tensions worsen.
The impact has been felt most acutely in the manufacturing sector, where concerns over supply chains and international competitiveness are intensifying. Confidence also declined in the property and retail sectors, both of which are more exposed to higher operational costs and weakening consumer demand.
“Economic performance was rather unbalanced,” added Thiru. “While there were some bright spots, they were overshadowed by a torrid quarter for those sectors most vulnerable to these domestic and global headwinds, most notably manufacturers.”
There was, however, a silver lining for the Bank of England. Businesses reported increasing prices at the slowest pace since the end of 2021, which could give policymakers confidence to begin easing interest rates. Analysts expect a 25 basis point cut at the Bank’s next meeting on 8 May, reducing the base rate from its current 4.5 per cent.
“The mood music on the economy is turning increasingly sour,” Thiru warned. “With forward-looking indicators of sales and employment activity weakening, things may get worse before they get better.”
For now, businesses face a challenging period ahead, as they navigate higher costs, policy uncertainty and a global economy in flux.
