Blow to Labour as Reeves' plan for economy 'snuffs out' business leader confidence

Based on the IoD's Economic Confidence Index, which measures business optimism in prospects for the UK economy, dropped to -12 last month.

This comes after the index soared to a three-year high of +7 in July, following Labour's election win.

Notably, business leader confidence in their own organisations slipped from +36 to +23 between July and August.

This drop in confidence can be partially blamed on business investment intentions for the year ahead falling 14 points

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The drop from +24 in July to +10 in August represents the sharpest decline since the beginning of the Covid-19 lockdowns

Similarly, headcount expectations among leaders had a sharp fall over the period from +24 to +10.

From July to August, revenue expectations dropped from +36 to +28 while cost expectations rose from +81 to +83.

Furthermore, export expectations slipped from +12 to +8 which is the lowest since June 2023.

According to the IoD's Index, the UK's economic conditions and labour shortages continue to be the most significant factors in detrimentally impacting business prospects.

This is closely following by business taxes and compliance with Government regulation, with 41 per cent and 37 per cent of leaders citing these as an issue, respectively.

Employment taxes were ranked as industry bosses' fifth greatest concern for August, up from eighth place.

The Chancellor is expected to announce a slew of tax rises as part of the Budget on October 30.

Anna Leach, Chief Economist at the Institute of Directors, outlined why many business leaders are concerned about the rumoured policies which are set to be introduced.

She explained: "It’s disappointing to see last month’s welcome uptick in business leader confidence snuffed out over the summer.

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"It is notable that the sharpest drops in our economic measures are in investment and headcount expectations, whilst other measures have moved to a lesser degree, albeit in a likewise negative direction.

"The newsflow in recent weeks on employment rights and Autumn tax rises has dented confidence in the environment for business in the UK.

“As we head into a busy Autumn, we are calling on the Government to take time to get policy design right for the long-term, and deliver the stable tax and policy framework needed to drive business confidence and investment.

"Further clarity on the industrial strategy and the business tax roadmap, in conjunction with more progress in engaging with business on workers’ rights, would be welcome.”