UK business confidence edges higher in October despite budget nerves

Confidence among UK businesses improved in October, but remained below the optimism seen during 2023 and 2024, a report on Wednesday showed.

The latest S&P Global UK business outlook for October showed that confidence levels improved from June and reached their highest in a year, while profit expectations "remain subdued" amid ongoing cost concerns.

The net balance of UK companies expecting an increase in output over the next 12 months rose to positive 33% in October, slightly up from positive 32% in June.

This marks a "modest improvement" from the recent low of 25% in February, but expectations remain down on the long-term average observed over the past 16 years.

Both the services and manufacturing sectors showed a "slight uptick" in overall business confidence, S&P Global said.

Manufacturers highlighted opportunities for international expansion, potential trade deal benefits, new product development and technological innovations.

Services firms pointed to new customer acquisitions and efforts to boost productivity through increased use of AI and digital technologies.

S&P Global said many businesses remained cautious, citing higher recession fears, inflation, subdued consumer spending and geopolitical instability.

Firms also expressed concern about the uncertain impact of tax raising measures in the forthcoming budget.

In October, the net balance of UK firms expecting staff costs to rise over the next year remained high at 70%, while expectations for non-staff input costs increased to their highest level in nearly three years at 56%.

The net balance of companies planning to expand their staffing capacity was unchanged at 5%.

Capital expenditure expectations turned negative for the third consecutive survey, with a net balance of negative 6%, while firms also project a reduction in research & development spending with a negative 7% net balance.

The net balance of firms expecting profit gains ticked down to positive 5% in October.

"Although UK businesses signalled the best outlook for future economic activity in a year, there were still a number of factors that dampened confidence, including elevated inflationary pressures, weak consumer spending, geopolitical tensions and uncertainty about fiscal changes in the upcoming budget," said David Owen, senior economist at S&P Global Market Intelligence.

He added: "Firms still expect operating costs to rise substantially, which is having adverse impacts on profit forecasts, hiring plans and capital expenditure budgets.

"On a positive note, some firms hope that if the trade environment stabilises, they should be able to recoup foreign sales and maximise opportunities in new markets. AI investment is also a common factor driving positivity, with services firms especially anticipating this area of expenditure to rise strongly over the coming year."

The S&P Global UK business outlook survey is based on a panel of around 1,300 companies in the manufacturing and services sectors.