Business confidence ‘at two-year low’ as tax hikes loom
More than half of private sector firms are planning price hikes to help offset looming tax increases announced in the chancellor’s first budget , according to a corporate lobby group.
The British Chambers of Commerce (BCC) warned business confidence was at its lowest level since the market meltdown that followed the Conservatives’ mini budget of autumn 2022.
Its survey of almost 5,000 firms found worries about tax stood at levels not seen since 2017.
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Labour had fought a growth-focused election on the back of an improved working relationship with business but there was a widespread sense of shock when the 30 October budget put businesses on the hook for the bulk of £40bn of tax increases.
The new government argued the hikes were necessary to lock in long overdue investment in public services due to an alleged black hole in the public finances inherited from the Tories.
But companies widely warned the higher costs, from measures such as higher employer National Insurance contributions and National Living Wage increases from April, would be passed on to customers and hit wage growth, employment and investment.
At a time when the Bank of England is struggling to cut interest rates due to stubborn cost pressures in the economy, there will be concern among policymakers over the threat posed by potential business price hikes ahead.
The BCC survey found 55% of companies were planning to raise their own sales costs.
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Such a move would threaten further upwards pressure on inflation while weak business confidence will also do little to lift the economy out of the doldrums witnessed during the second half of 2024 when government warnings of a “tough” budget ahead were widely blamed for hitting sentiment.
Financial markets currently see just a 60% chance of a Bank rate cut at the next meeting in a month’s time.
BCC director general Shevaun Haviland said: “The worrying reverberations of the budget are clear to see in our survey data. Businesses’ confidence has slumped in a pressure cooker of rising costs and taxes.
“Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging. Businesses are already cutting back on investment and say they will have to put up prices in the coming months.
“The government is rightly coming up with long-term strategies on industry, infrastructure and trade. But those plans won’t help businesses struggling now.
“Business stands ready to work in partnership to make the proposed Employment Rights legislation work for all, but the current plans will add further costs on firms.”
The BCC said the government could help firms absorb the additional pressures in areas such as business rates reform and through infrastructure investment.
A Treasury spokesperson said in response: “We delivered a once in a parliament budget to wipe the slate clean and deliver the stability businesses so desperately need.
“We have ensured more than half of employers will either see a cut or no change in their National Insurance bills, and by capping the rate of corporation tax at the lowest level in the G7, creating pension megafunds and establishing a National Wealth Fund, we are bringing back political and financial stability, creating the conditions for economic growth through investment and reform.
“This is just the start of our Plan for Change which will unlock investment, get Britain building via planning reform, and employ a modern Industrial Strategy to deliver the certainty and stability businesses need to invest in the UK’s growing and high potential sectors. This will make all parts of the country better off.”
The head of the UK’s biggest mortgage lender has said he expects two more interest rate cuts this year, making borrowing cheaper.
Chief executive of Lloyds Banking Group Charlie Nunn told Sky News he expected the Bank of England to make the cuts two more times before 2026, likely bringing the base interest rate to 3.75%.
Two cuts are currently anticipated by investors, the first of which is due to be a 0.25 percentage point reduction next month.
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The banking group owns Halifax and Bank of Scotland, making it the biggest provider of mortgages.
Mr Nunn also forecast house price growth of between 2 and 3%.
“We helped 34,000 first-time buyers in the first half [of the year] alone, 64,000 last year. And of course, it was driven by the stamp duty changes in Q1 [the first three months of the year]. So Q2 [the second three months] was a bit slower, but we continue to see real strength in customers wanting to buy homes and take mortgages. So we think that will continue,” he said.
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Expect two more rate cuts this year, says Lloyds boss
It comes as the bank reported higher profits than City of London analysts had expected.
Half-yearly profit at the lender reached £3.5bn as people borrowed and deposited more.
The bank has benefited from high interest rates, set at 4.25% by the Bank of England to control inflation, which have made borrowing more expensive for households and businesses.
Over the last six months, the difference between what Lloyds earns on loans and what it pays out rose.
Mr Nunn told Sky News the profits were due to increased market share in mortgages and small business lending, as well as productivity improvements.
Despite this, Mr Nunn warned the chancellor against raising taxes on financial services, saying it was one of the highest taxed in the world.
Chancellor Rachel Reeves is expected to announce tax rises in the autumn as her vow to bring down debt has come under pressure due to the rising cost of borrowing and government spending U-turns.
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