Downbeat Outlook for British Firms

LONDON (Reuters) – British firms have grown more downbeat about the outlook as concerns about the tax impact of the new Labour government's upcoming autumn budget and conflict in the Middle East dampened sentiment, a survey showed on Tuesday.

The British Chambers of Commerce (BCC) stated that 48% of the 5,152 companies surveyed between August 19 and September 16 reported taxation as a main area of concern ahead of the budget. This percentage increased from 36% in the previous survey.

David Bharier, BCC head of research, noted, "Many businesses are increasingly anxious about the direction of economic policy, and taxation has now become their primary concern. The major escalation in the Middle East conflict will also be a significant factor."

British finance minister Rachel Reeves is expected to present her inaugural tax-and-spending autumn statement, warning that some taxes might increase in the budget scheduled for October 30.

Reeves may alter the government's fiscal rules for reducing public debt, potentially allowing for more borrowing, which could aid investment and economic growth. As of August, British government debt reached 100% of economic output—levels unseen on a sustained basis since the early 1960s.

The BCC survey revealed that 56% of businesses anticipate an increase in turnover over the next 12 months, a decrease from 58% in the second quarter, while most firms no longer expect profits to rise. Just over one in five companies reported having increased investment.

Bharier stated, "Investment levels remain the Achilles heel of the UK economy. Despite interest rates starting to fall and inflation easing, most SMEs (small and medium-sized firms) are still hesitant to invest."

Concerns about interest rates and inflation are continuing to decline, according to the BCC. The Bank of England is anticipated to lower borrowing costs at its next meeting in November following its first cut in over four years in August and a pause in September.