UK consumer and business confidence declines as Labour’s tax-raising budget sparks concerns over hiring, rising costs, and economic growth prospects.

UK consumers and businesses have grown more pessimistic about the state of the economy following Labour’s tax-raising budget, which has triggered concerns over hiring and escalating costs.

Recent surveys indicate a decline in confidence among British households and the vital services sector this month, undermining the government’s ambitions to permanently elevate economic growth to the highest in the G7 over the next five years.

According to the British Retail Consortium (BRC), a survey conducted this month found that more households are worried about the economy than before the budget announcement. The uncertainty has led households to maintain steady spending levels in November compared with October, despite the approach of Christmas, with only a marginal improvement in their personal financial situations post-budget.

In a separate survey assessing confidence among service-sector businesses—which constitute about three-quarters of the economy—there was the sharpest drop in optimism in two years over the three months to November, interrupting a nine-month trend of improving sentiment.

The Confederation of British Industry (CBI), which conducted the survey, reported that services firms are grappling with elevated wage costs, a situation likely to worsen after the government’s decision to raise employers’ national insurance contributions from April, expected to generate £16 billion to £20 billion annually.

Alpesh Paleja, the CBI’s interim deputy chief economist, remarked that the data does not present “a pretty picture,” adding: “Falling sentiment, weaker hiring intentions, and firming cost pressures are all at least a partial response to the forthcoming rise in employer national insurance contributions.”

Recent indicators of economic sentiment have dipped following the government’s £40 billion tax-raising budget and warnings of “tough choices” for public finances. Official data showed a 0.7 per cent decline in retail sales in October, ahead of the budget.

The BRC’s survey revealed a two-point decline in household sentiment regarding the state of the economy, down to minus 19. Consumers reported only a one-point improvement in their personal financial situation between October and November, while overall savings intentions and spending remained unchanged.

Helen Dickinson, chief executive of the BRC, stated that the retail industry faces a £7 billion rise in costs due to the national insurance increase, leaving the sector “little choice but to raise prices or reduce investment in jobs and shops.”

“To mitigate this, the government must ensure that changes to the business rates system, planned for 2026, bring about a meaningful reduction in bills for all retailers,” she said.

The national insurance rise could derail the steady recovery in hiring reported in the private sector this year, according to the Recruitment and Employment Confederation (REC). Its latest survey showed an improvement in economic sentiment in the three months to October and a surge in employers’ confidence in hiring decisions last month.

“The scale of the changes to employers’ national insurance—in particular, the decision to increase the tax far more for lower earners—will be a headwind for hiring confidence from here on in,” said Neil Carberry, chief executive of the REC. “The Chancellor has balanced the books on the backs of businesses across the country; now she needs to deliver on support for growth.”