The Institute of Directors (IoD) Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell to -74 in September 2025 from -61 August. This exceeds the recent record low of -72 in July 2025 and marks the lowest reading of the Index since its introduction in July 2016.
Business leaders’ confidence in their own organisations also fell to -7 in September 2025, from +1 in August. This matches the level recorded in November 2024 (-7).
The negative trend is also reflected in the underlying indicators:
- Cost expectations rose to +89 in September 2025, from +85 in August. This is the highest reading of the indicator since its introduction in November 2017 and exceeds the previous series high recorded in February 2025 (+87).
- Headcount expectations fell to -13, from -4.
- Investment intentions fell to -20, from -8.
- Revenue expectations fell to 0, from +12.
- Wage expectations jumped to +64, from +42.
- Export expectations rose to +6, from +5.
On the biggest factors driving businesses’ outlook for costs over the year ahead (last asked in March 2025), the top three remain unchanged in ranking. The most significant is labour costs, selected by 83% (up from 77% in March 2025), followed by supply chain inflation (34%, from 36%) and energy costs (32%, from 34%).
Anna Leach, Chief Economist at the Institute of Directors, commented: “Business confidence has plumbed new depths in September, following a fleeting improvement at the tag-end of summer. Conditions worsened across the board, with cost expectations hitting a record high, driven notably by employment costs. Investment expectations declined again, although they remained somewhat above the most recent low in November 2024. Meanwhile, headcount expectations continue to see-saw as the effects of the April rises in employment taxes and the living wage, alongside future concerns over employment regulations, continue to reverberate across companies.”
As the Chancellor, Rachel Reeves, prepares her second Budget, Leach added: “Business leaders are calling for a reduction in government-generated costs – whether through a lower tax burden or lighter regulation. But crucially, they are seeking a more coherent and credible plan for growth. Some positive steps are in place – including additional public sector investment and long-term policy plans. But persistent fears that taxes on business and assets will rise are stifling confidence, holding back investment, and threatening growth and living standards.
“The Chancellor’s conference speech rightly reiterated the role that fiscal credibility has in providing the platform for growth. But we urgently need a genuinely growth-focussed Budget that has business at its heart, that delivers genuine policy coherence and stability and reduces regulatory and tax burdens on business.”
NAM Implications:
- Given the current economic and political environment…
- …it would be more concerning if business confidence were otherwise.
- Essentially, business dislikes uncertainty, the only constant factor in 2025…
- Business will continue to hold back investment as leaders ‘wait & see’.
- (Meanwhile, opportunities for those prepared to gamble…)
