Business leaders’ sentiment towards the UK economy has deteriorated sharply, with June’s Directors’ Economic Confidence Index (DECI) from the Institute of Directors (IoD) falling to -53. The reading, derived from a monthly net-balance survey, marks the lowest since the height of the pandemic and leaves confidence just 16 points above its April 2020 nadir of -69.
While some macro indicators have stabilised, business caution remains entrenched. The Federation of Small Businesses’ Q1 2025 Small Business Index stood at -40.7, still negative despite improving from -64.5 in late 2024. Office for National Statistics data from June shows just 14% of UK firms reported higher monthly turnover, and over a quarter cite economic uncertainty as their main obstacle.
“Collaboration and tenacity will be at the heart of long-term economic growth in the UK,” said Flora Hamilton, Executive Director of the Small Business Charter. “People often talk about SMEs being the backbone of the UK economy, but they can sometimes feel overlooked.”
Hamilton also pointed to the value of peer support. “The alumni from our Help to Grow: Management Course tell us that mentorship, networking and learning alongside peers is crucial for sparking bigger ambitions, which they then go onto achieve.”
In the renewable energy sector, cost pressure and policy uncertainty are reshaping strategic decisions. Nick Spicer, Chief Executive of Your Eco, noted: “Recent regulatory changes are reshaping strategic thinking. The increased operational costs from minimum wage rises and compliance requirements are forcing directors to reassess project timelines.”
Data from Solar Energy UK shows a pivot toward solar-plus-storage systems, with co-located batteries offering a hedge against volatility. But at the same time, the Crown Estate has warned that wage and supply-chain inflation has triggered cancellations in UK offshore wind projects. RenewableUK is now calling for longer-term Contracts for Difference to help restore certainty.
“The key difference I observe from our international work is policy consistency,” Spicer said. “Countries like Germany and Denmark provide the multi-year certainty that enables confident capital deployment. What UK businesses need most is sustained commitment to renewable energy incentives that extend beyond electoral cycles.”
Automation rises as cost pressures mount —
Technology and consultancy firms are reporting a different but equally structural response. Christel Wolthoorn, COO of advisory firm BML, described how budget pressure is forcing clients to delay or cancel high-value projects. “On one hand, pressure on budgets is forcing clients to delay decision making or kill important projects. On the other, there’s a rush to implement automation and reduce headcount.”
This environment has hit junior talent hardest. Graduate job listings in the UK are down 33% year-on-year, according to Indeed, with the Big Four accountancy firms significantly reducing their trainee intakes. A CIPD survey in February found that one-third of UK employers planned to cut junior recruitment due to April’s payroll tax increase.
Across sectors, leaders are calling for greater clarity and longer-term thinking. Germany and Denmark offer instructive comparisons: Germany attracted €37 billion in clean energy investment last year, aided by stable incentives and long-term grid plans. Denmark’s Climate Act mandates annual action plans assessed independently, giving businesses predictable frameworks out to 2050.
By contrast, UK firms continue to operate under shorter-cycle policies. While calls are growing to extend CfD terms from 15 to 25 years, many sectors remain wary of fiscal resets and abrupt regulatory shifts.
Looking ahead to the Autumn Budget, business groups are calling for targeted interventions. The British Chamber of Commerce has urged the Chancellor to commit to no further tax rises, while the CBI has called for expanded capital allowances and moderation of future minimum-wage hikes. The IoD wants permanent full expensing and simplified tax administration. The FSB, meanwhile, is prioritising NIC relief, VAT threshold reform, and increases to the Employment Allowance.
Spicer, for one, remains cautiously optimistic: “Despite the challenges, there’s genuine optimism in our sector. The fundamental drivers — energy security, cost reduction, and climate commitments — remain compelling. Directors who view current policy changes as temporary headwinds whilst maintaining focus on long-term decarbonisation goals will emerge stronger from this period of adjustment.”
For now, UK directors continue to navigate a period of adjustment, balancing resilience and realism as policy clarity remains elusive.
