British Firms Dampen Outlook Amid Tax and Conflict Concerns

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 reported that 48% of 5,152 companies surveyed between Aug. 19 and Sept. 16 cited taxation as a main area of concern ahead of the budget, up from 36% in the previous survey.

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

British finance minister Rachel Reeves, who is set to deliver her inaugural tax-and-spending autumn statement, has warned that some taxes might increase in the Oct. 30 budget.

Reeves is expected to amend the government’s fiscal rules concerning public debt, which could lead to increased borrowing, potentially boosting investment and economic growth.

British government debt in August reached 100% of economic output, levels not sustained since the early 1960s.

The BCC survey indicated that 56% of businesses expected turnover to increase over the next 12 months, a slight decrease from 58% in the second quarter, with most not expecting profits to rise.

Just over one in five firms reported having increased investment.

“Investment levels remain the Achilles heel of the UK economy. Despite falling interest rates and easing inflation, most SMEs (small and medium-sized enterprises) are still hesitant to invest,” Bharier said.

Concerns regarding interest rates and inflation have continued to decline, the BCC noted.

The Bank of England is anticipated to reduce borrowing costs at its next meeting in November, following its first cut in over four years in August and a pause in September.