British business leaders’ confidence experienced a modest uptick in December, although persistent concerns about rising costs could hamper growth prospects in 2025. The Institute of Directors’ (IoD) economic optimism index climbed four points to -61 from -65 in November, marking a slight recovery from the post-budget sentiment decline.
The survey, encompassing 497 IoD members, revealed that while the December reading showed improvement, it remained the fourth-lowest since the index’s inception in July 2016. IoD Chief Economist Anna Leach noted that members maintained a cautious outlook during the festive period, despite improvements across forward-looking economic measures.
Cost pressures remain a significant concern, with 87% of respondents expressing anxiety about increased operational expenses in the coming year. The situation is expected to be exacerbated by Chancellor Rachel Reeves’s October budget announcement, which outlined a rise in employers’ national insurance contributions to 15% from 13.8% starting April, alongside a 6.7% increase in the minimum wage.
Trading conditions expectations saw a notable improvement, with the sub-index jumping to +8 from -7, suggesting optimism about economic growth. The investment intentions index recovered to zero from -20, likely bolstered by anticipated Bank of England interest rate reductions from the current 4.75% level.
Labour market sentiment also showed signs of improvement, with the headcount index rising to -1 from -24, while revenue expectations increased to +19 from +4. Research from WPI Strategy indicates that the UK’s relative political stability compared to other G7 nations could attract increased investor interest, particularly given political uncertainties in France, Germany, and the United States.
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