Firms have warned rising employment costs, weaker demand and tax uncertainty are weighing on confidence
UK business confidence has fallen to its lowest level in 18 months, as firms warned they are being hit by a "triple squeeze" of rising employment costs, weaker consumer demand and uncertainty over future tax policy.
New analysis from S&P Global showed business optimism fell to 26 per cent in June, marking its weakest reading since February 2025.
The survey suggests businesses are becoming increasingly cautious as they face higher employment costs, softer customer demand and growing concerns over potential tax changes.
David Owen, director at S&P Global Market Intelligence, said: "Survey responses signal that a triple squeeze from rising labour costs, worries about Government taxation and weak consumer demand have made services firms more hesitant to commit to spending."
The findings come as businesses continue to assess the potential impact of future fiscal policy after Andy Burnham signalled there could be "some room within that manifesto for movement on tax" during an interview with LBC last week.
Mr Burnham has repeatedly said Labour will honour its manifesto commitment not to increase income tax, VAT or National Insurance.
However, his comments have prompted renewed discussion among businesses about whether other tax changes could be introduced.
The remarks have also revived memories of Rachel Reeves's £26billion tax package, which was followed by a sharp decline in business confidence when it was announced in February last year.
The services sector recorded the weakest confidence levels, with sentiment falling to its lowest point in more than three years.
Businesses in the sector reported higher labour costs while also expressing concern that the conflict in Iran could contribute to renewed inflationary pressures.
The proportion of services firms expecting output to decline over the next 12 months reached its highest level on record.
S&P Global said only the period following the 2008 financial crisis and the market volatility after Liz Truss's 2022 mini-Budget produced similarly weak expectations.
The findings highlight the scale of the challenges facing businesses as they contend with a weaker economic outlook.
Separate figures from the British Retail Consortium showed footfall across UK shopping destinations fell by 3.4 per cent in June compared with the same month last year.
The trade body said part of the decline reflected shoppers staying away from high streets during last month's heatwave.
The figures also come amid wider concerns about household spending as consumers continue to face pressure on their finances.
Businesses said uncertainty surrounding the conflict in the Middle East has added to concerns that inflation and household energy bills could increase.
Many consumers have responded by reducing discretionary spending, adding further pressure on businesses already dealing with higher wage costs and uncertainty over future taxation.
The combination of weaker consumer demand, rising operating costs and uncertainty over the economic outlook has contributed to the weakest level of business confidence recorded since the beginning of 2025.
