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UK business confidence has fallen to its lowest level in almost five years, amid growing concern among companies as economic pressures weigh on growth, investment and hiring, according to a new survey from BDO.
The latest reading of the Optimism Index from the firm shows confidence has dropped to levels last seen during the early stages of the pandemic.
The survey of more than 4,000 executives points to persistent inflation, rising costs and weak demand as key factors behind the decline, affecting both the services and manufacturing sectors.
The data comes at a fragile moment for the UK economy, with businesses facing continued uncertainty over interest rates, labour shortages and subdued consumer spending. Although inflation has eased from recent highs, BDO said cost pressures remain elevated and are continuing to erode margins.
BDO warned that falling confidence has historically been linked to weaker capital investment and slower job creation, raising concerns about productivity and the pace of economic recovery if sentiment remains depressed.
Sachin Agrawal, managing director for Zoho UK, said businesses were finding it harder to plan amid mounting pressures.
He said: “Rising costs, increasing regulatory pressures, and uncertainty around future demand are making it harder for businesses to plan long-term with confidence. Investing in technology infrastructure, including in data and AI, can create a strong foundation for businesses.”
Concerns about hiring and future growth were echoed by Kenny MacAulay, chief executive of Acting Office, a software platform for accounting practices.
He said: “A toxic mix of economic uncertainty alongside increased hiring costs is leaving business leaders cautious about 2026.”
MacAulay added that a rising tax burden and complex regulation were increasing risks for companies, and called for clearer signals of support from the government to encourage recruitment.
Despite some signs of resilience, BDO said a sustained improvement in business confidence would depend on greater economic stability and clearer long-term policy direction.
