Director Weekly UK business confidence is already in a rut – what will US tariffs do?
The IoD’s confidence tracker shows that business sentiment remains at historically low levels. The outbreak of a global trade war will do nothing to improve the outlook
April began with the release of new data from the IoD Directors’ Economic Confidence Index, our measure of business leaders’ optimism about the prospects for the UK economy.
The Index showed a slight rise in March to -58, up from -64 in February – which leaves business sentiment at a level comparable to the depths recorded during the Covid pandemic.
Underlying this pessimism is the relentless rise in costs: 87% of leaders expect costs to rise over the year ahead, the same as in February – the highest number on record. There are three main components.
1. Rising labour costs
More than three quarters of leaders (77%) highlighted the impact of spiralling labour costs. Increases in employer National Insurance Contributions and the National Minimum Wage kicked in at the start of April – and there are substantial concerns about the costs set to be imposed by the looming Employment Rights Bill.
2. Supply chain inflation
Supply chain cost pressures were identified by 36% of leaders – and this was before the unveiling of President Trump’s long-anticipated tariffs. The 10% tariff on imports from the UK are a blow to British business – after all, the US is the UK’s biggest single trading partner. More broadly, the outbreak of a global trade war seems sure to exacerbate supply chain pressures, and have a chilling effect on the global economy.
3. Energy costs remain high
Finally, energy costs continue to be a major concern. Although global oil prices have eased, business energy bills are higher in the UK than in many other countries. This is particularly problematic for manufacturing industries.
How should the UK government respond?
Given those cost pressures, emerging government policy is critical. Much rides on the industrial strategy, small business strategy, and trade strategy – all due around June.
Yet in the immediate term, it is how the UK responds to the US tariffs that will have the biggest impact on the economic outlook. The OBR estimates that if the average tariff rate between the US and the rest of the world rose to 20% points, UK GDP could be reduced by 1% at a stroke.
The calm, level-headed approach promised by the government is welcome. Some response may be judged necessary – yet sweeping retaliatory measures would simply fuel inflation and depress demand among British consumers already dealing with the myriad price rises of ‘Awful April.’ That would just add to the problems facing business.
We are therefore supportive of a pragmatic approach based on constructively engaging with the US administration and other trading partners – and of every effort to sustain the position of UK exporters in an increasingly fragmented global economy.
Read more on the latest data from the IoD Directors’ Economic Confidence Index here.
About the author
Dr. Roger Barker is Director of Policy and Governance at the Institute of Directors, and a member of the Management Board. Dr. Barker is the author of numerous books and articles on corporate governance and board effectiveness, including the recent volume: ‘The Law and Governance of Decentralised Business Models: Between Hierarchies and Markets’ (Routledge, 2020). He is a former member of the European Economic and Social Committee and the founder of a successful corporate governance advisory company. A former investment banker, Dr. Barker spent almost 15 years in a variety of equity research and senior management roles at UBS and Bank Vontobel, both in the UK and Switzerland. He has a doctorate from Oxford University and taught politics at Merton College, Oxford (2005-2008).
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