IoD press release Cost concerns rise to record levels among business leaders

Business confidence remains at historically depressed levels, just above the recent nadir of -65 in November 2024 and close to the lows reached during Covid.

Business leader confidence in their own organisations also dropped back from +6 in January to +2 in February.

In terms of the underlying indicators:

• Cost expectations rose from +83 in January to +87 in February, the highest figure on record.
• Headcount expectations dropped from -9 to -16.
• Investment intentions fell from -14 to -18.
• Wage expectations dropped from +41 to +38.

Looking at the quarterly assessment of factors having a negative impact on business leaders’ organisations:

• UK economic conditions remained the most significant concern for members, with the degree of concern also remaining the same: 73% felt that economic conditions were having a negative impact on their organisation in February 2025, the same proportion as in November 2024.
• Employment taxes and business taxes also remain the second and third largest concerns, cited by 64% and 50% respectively, slightly up from 67% and 51%.
• Compliance with government regulations (33%) and skills/labour shortages (31%) are the next most significant concerns, again as they were in November. However, there has been a slight drop in the proportion of members citing these, from 38% and 37% in November respectively.

We also asked business leaders how they were expecting to be affected by and responding to the changes in employer National Insurance:

• 83% of respondents expect their employer NI bills to increase. Of those:
  • 47% expect to reduce employment
  • 41% expect to increase prices
  • 39% expect to lessen wage increases
  • 30% expect to absorb the costs in lower margins
  • 25% will seek to increase productivity

Anna Leach, Chief Economist at the Institute of Directors, said:

“Directors’ confidence has dipped again this month, returning to around its recent post-election lows. Amidst downgrades to UK growth forecasts, businesses remain concerned about the health of the UK economy, as well as tax and regulatory burdens. Our engagement with business leaders reveals that they’re increasingly worried about inflation, the cost of energy and the repercussions of policy decisions in the States. As businesses adjust to an evolving cocktail of costs and risks, around half are expecting to reduce employment in response to rising costs, with price increases also being considered. Meanwhile, investment intentions have dipped further, as businesses expect tax increases to hit their bottom line more than previously.

“As headwinds to UK growth ratchet higher, strong relationships with our major trade partners will be crucial for navigating choppy geo-political waters. Closer collaboration on defence with our European neighbours should elevate the opportunity to reset the UK’s relationship with the EU. But the government’s strongly vocalised intent to prioritise growth needs more urgently to be matched by action to address the cost pressures facing business. As energy prices push up once more, the industrial strategy is an opportunity to map a realistic path to net zero that also addresses the UK’s uncompetitive industrial energy prices.”

The IoD Directors’ Economic Confidence Index measures the net % positive answers from members of the Institute of Directors to the question ‘How optimistic are you about the wider UK economy over the next 12 months?’ on a five-point scale from ‘very optimistic’ to ‘very pessimistic’.

Full Results

687 responses from across the UK, conducted between 14-26 February 2025. 16% ran large businesses (250+ people), 17% medium (50-249), 25% small (10-49 people), 32% micro (2-9 people) and 10% sole trader and self-employed business entities (0-1 people).

How optimistic are you about both the wider UK economy and also your organisation over the next 12 months?

Comparing the next 12 months with the last 12 months, what do you believe the outlook for your organisation will be in terms of:

Which of the following, if any, are having a negative impact on your organisation?

Will the announced changes to employer National Insurance in the Autumn Budget increase or reduce your employer National Insurance bill?

You said the changes will increase your employer National Insurance bill. How do you plan to respond to the resulting higher costs of employment?