The UK's business investment has plummeted to its lowest level since the pandemic, according to the British Chambers of Commerce (BCC), with just 17% of firms planning to increase investment in Q2. This marks a significant drop from 21% in the first quarter, as rising costs and tax burdens continue to weigh heavily on businesses.
The decline in investment sentiment is multifaceted, driven by the resurgence of inflation as a top concern for companies, alongside soaring energy costs – partly due to geopolitical events impacting oil supplies. Moreover, the continued impact of increased employer National Insurance contributions introduced in the 2024 budget is taking its toll on businesses.
David Bharier, Deputy Director of Economics and Insight at the BCC, observed that many firms now view government policy as a hindrance rather than an opportunity. He specifically highlighted the prolonged burden of employer National Insurance contributions as a major concern, nearly two years after their implementation.
The survey reveals a slump in confidence among businesses, with less than a third reporting increased sales over the past three months. Only 44% of companies anticipate improved turnover in the next 12 months, down from 49% earlier this year, while 23% expect a decline in sales. SMEs are disproportionately affected, with one Yorkshire-based services company reportedly feeling "taxed out of existence".
The retail and hospitality sectors are under acute pressure, facing the dual challenges of tax increases and persistent inflation. Less than a third of hospitality firms anticipate increased turnover, while 33% expect a decrease. Similarly, 32% of retail companies foresee a decline in sales. The BCC report highlights a "risk-aversion cycle" taking hold, as SMEs adopt defensive behaviour due to compounding cost pressures and global shocks. This trend poses significant challenges for the government to stimulate private sector investment and drive economic growth.