Published: 30/07/2025 By Hannah Duncan
The ICAEW’s Q2 2025 Business Confidence Monitor shows that business sentiment in the UK has fallen for the fourth consecutive quarter, with the confidence index dropping to -4.2. This decline reflects ongoing concerns about the tax burden, softer expectations for both domestic and export sales, and a generally uncertain global economic outlook.Key Findings:
- Confidence & Sales Outlook: Business confidence remains subdued, particularly among exporters, where sentiment turned negative for the first time in nearly three years. Domestic sales growth slowed to 3.0%, and expectations for future growth have been revised down across the board.
- Sector Sentiment: Manufacturing & Engineering (-14.0) and Retail & Wholesale (-11.4) are the least confident sectors, citing rising tax concerns and weak consumer demand. In contrast, IT & Communications (+8.4) and Construction (+4.7) remain more optimistic, supported by expectations of government infrastructure spending.
- Top Business Challenges: The tax burden remains the most widespread growing challenge, cited by 55% of businesses. This issue is particularly acute in Construction (70%) and Retail (60%). Regulatory burdens and customer demand are also rising concerns, as businesses adjust to higher National Insurance Contributions and ongoing market competition.
- Costs & Prices: Input price inflation eased slightly to 3.7%, and businesses expect further moderation over the next 12 months. Selling price inflation rose to 2.3%, the first increase since Q2 2023, but is expected to ease again.
- Employment & Pay: While employment growth rose slightly to 1.4%, businesses expect hiring to slow to 1.3% over the next year. Salary growth also eased to 3.0%, with further deceleration projected, reflecting cooling labour market conditions.
- Profits & Investment: Profits rose modestly (2.8%) but remain below the historical average. Companies have lowered their profit and investment growth forecasts, citing uncertainty and still-high input and wage costs. Capital investment growth slowed to 2.3%, and R&D expansion remains weak.
After a stronger-than-expected start to 2025, the UK economy is showing signs of softening, with GDP falling in April and retail sales declining in May. The labour market is cooling, with job vacancies and employment dropping, while wage growth is easing. Meanwhile, global uncertainty stemming from US tariffs and Middle East tensions continues to weigh on sentiment.
Read our take on the Q1 Business confidence monitor