Optimism among large British businesses weakened ahead of the first annual budget of the newly elected Labour government, as concerns about global geopolitics dampened the outlook,
according to a survey published on Monday.
Deloitte’s quarterly business sentiment index revealed a significant drop in confidence for the third quarter, falling to +6% from +23% in the previous quarter. Despite the decline, sentiment remains above the long-term average of -1%.
The findings align with other measures of business and consumer confidence, which suggest a decline in optimism as the Oct. 30 budget announcement approaches. Finance Minister Rachel Reeves is expected to introduce tax increases aimed at addressing the government's budget deficit.
"Geopolitical uncertainty is the primary concern, and we are seeing heightened anxiety about the risk of a hard landing in the U.S. economy," noted Ian Stewart, Deloitte’s chief economist. Additionally, domestic productivity challenges were flagged as a significant issue for businesses.
Last week, a survey from the British Chambers of Commerce highlighted that tensions in the Middle East were a "major factor" driving boardroom worries, although potential tax hikes ranked as a more pressing concern.
In contrast to Deloitte's findings, Lloyds Bank’s Business Barometer, also released on Monday, showed a surge in business confidence, climbing 12 points to a nine-year high of +45%. Lloyds attributed the optimism to improved economic prospects and trading conditions.
The Deloitte survey, which primarily covers larger firms compared to those in the Lloyds poll, found that over half of the respondents plan to focus on cost-cutting measures in the coming year. Meanwhile, less than 10% of companies indicated they would prioritize increasing investment—an area the Labour government is keen to stimulate.
On the same day, Prime Minister Keir Starmer is set to host an international investment summit aimed at attracting foreign interest in the UK economy.
Despite broader caution, the Deloitte survey showed strong intent to invest in digital technologies, with 95% of companies planning to increase spending on innovations such as artificial intelligence (AI).
"Economists have long awaited a technology capable of reigniting productivity growth. If CFOs are correct, AI could be that transformative technology," Stewart commented.
A separate report from Oxford Innovation Advice, focused on smaller manufacturers, suggested that Reeves’ upcoming budget should include support for businesses adopting digital technologies. While 83% of SMEs expressed interest in leveraging digital tools to enhance efficiency, 72% cited cost as a barrier to adoption.
"What’s clear is that SMEs require more government support to make this digital transformation a reality," said Jane Galsworthy, Managing Director of Oxford Innovation Advice. Photo by Steve Talas, Wikimedia commons.