Business confidence hits two-year high ahead of Budget

Business confidence in the UK has climbed to a two-year peak ahead of the upcoming Budget, according to advisory firm BDO. The optimism among British firms has reached its highest point since just before the 2024 Autumn Budget, as shown by their Business Optimism Index. This index reached 94.22 in August, driven by a significant improvement in the services sector. The services sector's output index peaked at 98.37 last month, the highest level since January 2025.

The services sector's resilient activity, despite inflation concerns stemming from the Iran war, played a crucial role in boosting output. However, weak export demand for services slightly impacted the overall output index. The index of employment levels has remained relatively stable at 93.10, having slightly improved from a recent 15-year low. Although hiring in the UK economy is still modest, the pace of job losses is decelerating, indicating a stabilization of the jobs market from its recent lows.

BDO's analysts believe these positive economic readings bode well for the government ahead of next month's Budget. However, they warn that the government's efforts to address the rising costs faced by British firms may be undermined if Chancellor John Healey fails to take action. The British Chambers of Commerce and a group of influential business figures have called on the government to alleviate the "creep of taxes" and the burdensome tax burden on British firms.

Experts from BDO emphasize the importance of practical measures to reduce costs and unlock investment. They stress that if the government can turn this sentiment into tangible growth, it could lead to meaningful economic improvement.