Director Weekly Fiscal discipline, infrastructure investment, and global business

This week finds Westminster and Whitehall in something like the calm before the storm. Wednesday 11 June will see Chancellor Rachel Reeves launch the government’s Spending Review. It is one of the defining events in any government’s lifecycle, giving financial shape to its policy priorities by setting out departmental budgets for the coming years.

By its nature, the Spending Review is about taking a long-term view. Never a simple task, it feels especially challenging in 2025, given the range of challenges facing the UK – and the constant changes in our economic circumstances, which risk blowing long-term plans off course.

So as we look forward to the Review, it’s worth taking stock of recent developments.

1. Economic confidence is starting to recover

The IoD Directors’ Economic Confidence Index jumped to -35 in May 2025 from -51 in April. That’s the highest level since August 2024.

Although the Index remains in negative territory, the direction of travel – marked by three consecutive months of improvements – is encouraging, especially paired with stronger-than-expected economic data for Q1.

Can the economy escape from the recent spiral of muted growth and pessimism, and switch into a positive, upward, growth-based cycle? The government will be doing everything possible to ensure it does.

2. Fiscal discipline will remain central to the government’s strategy

That said, nobody should imagine that recent positivity will lead to an immediate loosening of the government’s purse strings.

The IoD has met recently with some of the most senior members of the government. It seems highly likely that the Spending Review will stick firmly to the fiscal rules that the Chancellor set out in 2024, despite political pressure – including from within her own party.

That said, businesses can expect eye-catching announcements on infrastructure – starting with this week’s £15bn for transport projects outside London. Remember that the Chancellor changed Treasury borrowing rules to target current budget balance, rather than overall borrowing. She says that will allow her to invest an additional £113bn in capital projects. Watch out for more details in the coming weeks.

3. Threats continue to abound

The government’s determination to stick to its rules has to be seen in the context of the risks facing the UK economy.

For one thing, gilt yields are edging up. That may primarily be the result of concern about the US, amid turmoil over tariffs and President Trump’s “big beautiful bill” on tax and spending, which would send the federal deficit soaring. But UK policymakers remember the pain inflicted by the markets under Liz Truss – and are at pains to avoid any repeat.

Meanwhile, there have been concerns about the UK’s trading position with the US, with last month’s US-UK Economic Prosperity Deal yet to be implemented. The UK has been spared this week’s doubling, to 50%, of steel and aluminium tariffs – for now. The US could apply the higher rate in July if the EPD is not fully in place.

So, the calm before the storm? Well, the Spending Review may not be much of a storm –it’s unlikely to rip up prior expectations – but things aren’t exactly calm, either. We will be following developments closely next Wednesday.

The IoD’s Spending Review priorities

Read the IoD’s submission to the Spending Review here.