British businesses faced a sharp confidence slump in November, with sentiment reaching its lowest point since January 2023.
This comes in the wake of Labour’s tax-heavy Autumn Budget, which has sparked significant concerns across industries.
According to BDO’s monthly report, the Optimism Index fell by 5.81 points to 93.49 — marking the steepest monthly decline since August 2021.
Confidence battered by budget measures
The fall in confidence was observed across the services and manufacturing sectors.
BDO attributed this sharp decline to businesses’ immediate response to budget measures, including increased National Insurance (NI) contributions and a rise in the National Living Wage.
BDO’s report highlighted the challenges businesses are currently navigating, including rising costs, falling orders, and labor market pressures.
“While businesses are hopeful for interest rate cuts early next year, these cost pressures may offset potential benefits, leaving the outlook uncertain,” the report stated.
Job vacancies decline at fastest rate since pandemic
Further exacerbating concerns, UK job vacancies fell in November at their quickest pace since the pandemic’s onset.
A report by KPMG and the Recruitment and Employment Confederation (REC) revealed that demand for staff experienced a “sharp and accelerated” drop, with permanent roles particularly affected.
“Businesses are reassessing hiring plans in light of increased employee costs, which is contributing to a significant slowdown in recruitment activity,” said Jon Holt, CEO of KPMG.
Retailers warn of multi-billion-pound cost
Retailers are particularly alarmed by the National Insurance hike, with the British Retail Consortium estimating it could cost the sector £2.3 billion ($2.93 billion) annually from April 2025.
Tesco is facing an extra £1bn added to its National Insurance bill over the next four years while Sainsbury’s chief executive Simon Roberts said its National Insurance would increase more than 50% year on year as £140m extra was piled on its bill.
On Monday, Domino’s Pizza announced that changes related to National Insurance contributions and the National Minimum Wage have “significantly increased labour costs” for the company and its franchise partners.
The company disclosed that, despite identifying specific plans to mitigate the financial impact, it expects the annual cost for Domino’s Pizza Group to increase by approximately £3 million starting from the 2024-25 fiscal year.
Shares in Domino’s Pizza fell by 3%, or 11.4p, to 340.6p following the announcement despite the company unveiling a new five-year agreement with its franchisees.
Bank of England Governor Andrew Bailey echoed employers’ concerns last month, cautioning that the increased cost burden might force businesses to cut jobs.
A mixed economic outlook
The dual challenges of cooling demand and rising costs present a murky picture for the UK economy.
While some relief could come from interest rate adjustments, the immediate impact of the budget measures appears to outweigh potential benefits.
Businesses now face the tough task of balancing operational costs with maintaining workforce strength in a slowing economy.
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