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Business confidence fell to its lowest level on record in September, driven by concerns over soaring costs, according to a survey of bosses.
Topping the unease were labour costs, with energy prices also weighing on the outlook.
Anna Leach, the chief economist at the Institute of Directors (IoD), said: “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.”
“The chancellor’s conference speech rightly reiterated the role that fiscal credibility has in providing the platform for growth.”
She urged Rachel Reeves to deliver a budget in November that is growth-focused and “has business at its heart”.
It came after two Bank of England policymakers said UK inflation may not fall as fast as expected next year, as a recent spike in food prices could persist into 2026.
Clare Lombardelli, a deputy governor at the Bank, said central bankers should be careful about assuming inflation shocks are temporary.
Catherine Mann, who also sits on the Bank’s nine-person rate-setting monetary policy committee (MPC), said she thought Britain’s inflation rate had become persistently high – although that did not mean further interest rate cuts were completely off the table.
“I believe that [an] inflation persistence scenario is playing out,” she said.
Mann, who was speaking at a Financial Times event, and Lombardelli, who was attending a conference in Finland, voted against the BoE’s most recent interest rate cut in August. They were outvoted by a majority of MPC members who said a slowdown in economic growth would support a fall in inflation over the next year to 2% from a likely peak of 4% in September.
Reeves said at the Labour conference that the economic stability provided by the government meant ministers could take some credit for five cuts to interest rates over the last year.
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However, predictions by leading economists that inflation will prove to be sticky, preventing further cuts by the central bank, would limit interest rate cuts, denting the chancellor’s budget plans.
The MPC member Sarah Breeden, speaking at Cardiff Business School, adopted a more dovish stance than her fellow rate-setters. She said on Tuesday it was unlikely that the strength of inflation this year would persist into 2026.
She said: “The good news is that this ‘hump’ reflects external shocks, and in the current environment it is unlikely, in my judgment, to lead to additional inflationary pressures.
“Moreover, I have not seen any evidence yet to suggest that the underlying disinflationary process from past shocks is veering off track. So far so good.”
