Market Insight Report Confidence dip as concerns over government policy grow
October 2024
Business confidence has declined in Q3 2024, following an optimistic start to the year.
Business confidence surveys from Q4 2023 to Q3 2024
Three out of the four major business confidence surveys showed an average decline in optimism in Q3 2024. However, the Lloyds Bank Business Barometer had a rise of 5% in confidence between Q2 and Q3 1.
Two observations from the surveys’ results…
- The monthly surveys were captured after the general election. This includes Lloyds Bank Business Barometer and the Institute of Directors (IoD) Economic Confidence Index.
- Taxation is now one of the main areas of concern for businesses.
Taxation now a major concern
The British Chambers of Commerce (BCC) economic survey 2 reported that 48% of respondents considered taxation to be the primary concern for their business, a 4ppt (percentage point) increase from the previous quarter. As a result, taxation replaced inflation as the top concern for companies.
The Institute of Chartered Accountants in England and Wales (ICAEW) Business Confidence Index 3 also reflected a rise in tax concerns for businesses.
Regulation and customer demand were consistently reporting challenges. However, anxiety over the autumn budget led to the tax burden to rise to its joint-highest level.
Respondents of The IoD Economic Confidence Index 4 reported concerns over likely tax increases. This was sparked by the approaching government policy announcements.
Businesses’ concerns over external factors
Businesses are feeling less confident about the economy’s prospects because of…
- Geopolitics
- The direction of economic policy
- Taxation under the new government
Business priorities in the next 12 months
Deloitte’s survey of Chief Financial Officers (CFO) in Q3 2024 reported that 55% and 42% of finance leaders will be prioritising reducing costs and increasing cashflow in the next 12 months. This is a major increase compared to the previous quarter 5.
Company insolvencies
Company collapses peaked in 2023 and is the highest in three decades. It's forecasted that 30,000 businesses will stop trading in 2024 6. Despite this, economic conditions seem to be improving.
UK economy grew by 0.2% in August 7
Inflation dropped by 0.5% between August and September 8. This was also below the Bank of England target of 2%
The Bank of England kept interest rates unchanged at 5% 9
Interest rates are predicted be cut in November 10
According to PwC, it takes around 18-24 months for company collapses to reflect the economic conditions. As the size of the companies being declared bankrupt is larger, it takes longer to go through the bankruptcy process.
Business electricity bills will stay above pre-crisis levels in the future
Energy prices have come down in the last 18 months. However, businesses are still paying more for electricity than the years before the energy crisis. Energy consultancy, Cornwall Insights 11 predicts that business customers will pay 75% more for their electricity in 2024 than pre-crisis levels.
The residual effects of the energy crisis and Russia’s invasion of Ukraine continue to influence the wholesale market. This - alongside other changes, including network charging reforms - has kept prices higher than historic averages. Changes coming in over the next couple of years, including the rise in newer carbon levies and the anticipated introduction of new cost elements, are expected to see prices increase from April 2026.
Summary
In summary, businesses are feeling less optimistic about the future driven by uncertainty over government policy and geopolitics. Although the economy seems to be stabilising, companies are concerned about the impact of higher taxes and face higher energy bills than in the years before the energy crisis. As a result, they are re-focusing on reducing costs. In the future, renewable energy should work to lower bills. However, it may take years for businesses customers to feel the benefits.
Related articles
Additional information
Lloyds Bank Business Barometer September 2024, 30 September 2024
The British Chambers of Commerce Q3 2024 Economic Survey, 7 October 2024
Institute of Director’s Economic Confidence Index, 1 October 2024
Office for National Statistics (ONS) GDP monthly estimate, UK: August 2024, 11 October 2024
Office for National Statistics (ONS) Consumer price inflation, UK: September 2024, 16 October 2024
Bank Rate maintained at 5% - September 2024, Bank of England 19 September 2024
Surprise fall in inflation paves way for interest rate cuts, BBC 16 October 2024
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