Blow for Reeves as business confidence at near record low after Budget

Business confidence is at an almost record low after the Budget, the Institute of Directors (IoD) has warned.

In the wake of Rachel Reeves’s announcements, which included an above-inflation rise in the minimum wage from April, industry leaders were more likely to believe that their revenue would fall and companies would invest less, a survey by the IoD found.

Anna Leach, chief economist at the IoD, said the deterioration in their expectations was “worrying” and called on Ms Reeves to do more to improve the prospects for economic growth.

After the Budget, the owner of All Bar One, Mitchells & Butlers, warned that it faced about £130m in extra costs over the next year because of higher wages and rising food prices.

The IoD Directors’ Economic Confidence Index, which measures business leader optimism in the UK economy, remained at a near record low of -73 in November, unchanged from October. And in a snap poll directly after the Budget, the index rose only one point to -72.

Ms Leach said: “Headcount and investment expectations have fallen sharply, to levels close to those seen during the pandemic. Revenue expectations have also eased, though they are holding up better than other indicators. Crucially, confidence in leaders’ own organisations has dropped, too – a sign that the Budget has weakened sentiment not just about the UK economy, but about firms’ ability to grow in it.”

The Office for Budget Responsibility has forecast that the UK’s growth will be just 1.5 per cent this year.

In documents published alongside the Budget, it also slashed predictions for next year and the three years after that.

The watchdog also warned that the Budget contained no measures that would have a “material effect” on growth, but that it would raise £26bn in taxes.

In a speech on Monday, Sir Keir Starmer will admit that the government needs to go “further and faster” on growth.

He will defend the Budget for tackling the cost of living, creating greater fiscal headroom, and protecting investment and public services.

While he will say that “economic growth is beating the forecasts”, he will add that ministers must go “further and faster” to encourage it.

He will also confirm that changes will be made to the rules around the construction of nuclear power plants, after the nuclear regulatory taskforce found that “pointless gold-plating, unnecessary red tape and well-intentioned, but fundamentally misguided environmental regulation” had made Britain “the most expensive place to build nuclear power”.

“We urgently need to correct this,” the Labour leader will say.

Business secretary Peter Kyle will be tasked with applying the same deregulatory approach to major infrastructure schemes, in a bid to boost growth.