Rachel Reeves is flying back from China to London facing a new serious warning as Deloitte reported that business bosses’ confidence is at one of its lowest points since the Covid-19 pandemic in 2020.
After suffering a barrage of criticism for going ahead with her controversial trip to China, the chancellor is being told that her management of the economy is under question from some of the country’s biggest companies.
To make matters worse she may be forced to fire her City minister Tulip Siddiq over allegations of taking gifts from her aunt and deposed Bangladesh leader Sheikh Hasina when she was in power.
According to the survey of 63 chief finance officers (CFOs) at major companies a net 26 per cent reported feeling more pessimistic about the prospects of their business than three months ago, marking the first time sentiment has tipped into negative territory since the second quarter of 2023.
The survey is the 70th quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. Those surveyed include the CFOs of 29 FTSE 350 companies. The rest were CFOs of other UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas.
While confidence is still above the lows of 2020 and Liz Truss’ mini budget in 2022, a net 58 per cent expect UK corporates to cut discretionary spending, and a net -64% expect increases in hiring, which is a four-year low.
The figures appear to underline a crisis in confidence in the Labour government to deliver on its number one mission of economic growth.
Employment expectations have also seen the sharpest fall since the start of the pandemic in early 2020. Only 18 per cent of finance leaders on the panel think that now is a good time to take additional risk onto their balance sheets, the weakest appetite for risk in five quarters.
Ian Stewart, chief economist at Deloitte, said: “With cost control to the fore in the wake of the Budget, chief finance officers (CFOs) have trimmed expectations for corporate investment, discretionary spending and hiring in the next 12 months.
“But despite a fall in business confidence, we expect to see UK growth picking up over the summer on the back of easy fiscal policy and interest rate reductions, with GDP growth likely to exceed the 2024 outturn and the performance of the euro area.”
He added: “2025 seems likely to be a year of continued if modest UK growth. Looking ahead, a continued emphasis on policies to unlock the UK’s potential remain key to shifting the trajectory of activity.”
The findings come after last week saw a number of indicators lead to warnings of a potential recession and financial crisis.
The pound slid heavily against the US dollar and euro, gilt bonds were at an even higher level than the crisis, which saw Truss forced out of office, meaning Ms Reeves was on the verge of being forced to break her golden rule on borrowing.
Meanwhile, a report by the Chartered Institute of Procurement and Supply (CIPS) suggested that imports on staples like food and electronic goods could go up by 20 per cent this year because of global instability. This would lead to a new inflation cost of living crisis.
With Ms Reeves facing heavy criticism for going ahead with her controversial trip to China this weekend, political opponents seized on the latest survey findings.
Shadow business and trade secretary Andrew Griffith said: “Survey after survey show that the Labour Budget has damaged business confidence and our economy.
“The chancellor has made Britain more vulnerable because of her decisions.
“This is a crisis made in Downing Street and, sadly, it could get much worse for families across the country. Labour must set out how they are going to turn this around.”
The Deloitte survey also was bad news for employees with Ms Reeves’ national insurance hike in the Budget being blamed for low recruitment and suppressed wage increases.
Wage increases are slowing, with the CFOs reporting that average wages rose by 4 per cent at their business over the past 12 months, down from 4.6 per cent in the previous edition of the survey. They expect the pace of wage increases to slow further, to 3.2 per cent over the next 12 months.
And with Donald Trump set to take over in the White House this month, a net plus 59 per cent of CFOs suggested that the US is now an attractive place to invest while it is -12 per cent for the UK. This was still more attractive than EU economies which rate -36 per cent.
Despite the row over the Beijing trip, the science secretary Peter Kyle defended the chancellor’s record on the economy today and insisted she has returned with “solid commitments for investment” as the government commits to “rebuilding the relationship with China”.
Mr Kyle said: “I think what we have seen, for the chancellor to go over there, represent Britain on the world stage, come back with solid commitments for investment, but she also managed to raise the human rights issues that I think everybody in this country is concerned about.
“Now the alternative is this, that we sit here and we don’t engage, we don’t come back with even £600m, which will lead to future investment into the future (sic).
“So is the answer that it’s not big enough just to do nothing? That’s what the Tories are saying, they are saying she shouldn’t go, we shouldn’t have any engagement. This is our fourth biggest trading partner.”
He argued that Ms Reeves “could not fix everything in 12 months” and had been handed “a terrible legacy” by the Tories including a £22bn black hole in the finances.
But Tory shadow chancellor Mel Stride said that the chancellor’s visit to China is “tone deaf” and Ms Reeves should be “reassuring” markets in the UK.
Responding to the Deloitte survey, a Treasury spokesperson said: “Despite the difficult inheritance, this government is determined to go for growth and to work in partnership with businesses to invest in Britain’s future so we can make every part of the country better off.
“That is why we are delivering our Plan for Change with investment and reform to deliver growth and putting more money in people’s pockets. Our industrial strategy will also focus on the key sector of advanced manufacturing, offering certainty and stability to companies, boosting our competitiveness and unlocking investments in the industry.
“This government remains steadfast in promoting the UK as a global leader. With £63 billion in investments secured at last year’s record-breaking International Investment Summit—set to create 38,000 jobs—the chancellor’s visit to China this weekend and her upcoming trip to Davos demonstrate our commitment to driving growth and forging international partnerships.”
