Confidence among UK company directors improved in August but remained deeply negative as uncertainty over taxation, government policy, demand, regulation, and energy costs continued to weigh on investment plans.
The Institute of Directors said its Directors’ Economic Confidence Index rose to -49 in August from -63 in July.
The measure records the balance of IoD members who are optimistic or pessimistic about the UK economy over the following 12 months. August produced the strongest reading since January, but the negative figure indicates that pessimists still substantially outnumber optimists.
Directors became slightly more cautious about their own organisations, with the corresponding confidence measure falling to -5 from -2.
Several operating indicators improved. Revenue expectations increased to +12 from +9, while investment intentions rose to -9 from -13.
Headcount expectations remained negative at -6, compared with -7 in July, while export expectations edged to +4 from +3.
Cost expectations remained particularly elevated at +83.
The survey also asked respondents how the new Prime Minister and Cabinet had affected their confidence. The net impact was negative at -21 for the UK economy and -23 for respondents’ own organisations.
Tax uncertainty remained one of the most prominent concerns identified in the wider findings, alongside policy uncertainty, business costs, regulation, and the international economic outlook.
Anna Leach, chief economist at the Institute of Directors, said: “August saw a welcome improvement in the overall confidence of business leaders in the UK’s economic outlook.”
She said the improvement appeared to reflect international growth and business resilience rather than a positive response to the change in political leadership.
The survey collected 811 responses across the UK between 14 and 27 August, spanning sole traders and self-employed respondents through to employers with more than 250 people.
The divergence between greater confidence in the economy and weaker confidence in directors’ own organisations provides an important indication of how sentiment is translating into company decisions.
A director can expect the wider economy to improve while remaining reluctant to increase hiring or capital expenditure if future tax bills, employment costs, energy prices, and regulation are difficult to forecast.
Investment intentions remain below zero despite the improvement in August, indicating that caution is still present in capital planning.
That hesitation is being reinforced by the cost of finance. Government bond yields have risen substantially, and higher benchmark interest rates can feed into corporate borrowing, property finance, acquisition funding, and investment hurdle rates.
Businesses therefore face a combination of policy uncertainty and financial conditions that can alter the expected return on expansion projects.
Hiring decisions present another tension. Headcount expectations remain negative while labour and skills shortages persist in parts of the economy.
Companies needing specialist capabilities can respond by increasing wages, investing in training, recruiting internationally, automating processes, or delaying expansion where positions cannot be filled economically.
The IoD survey also shows boards paying greater attention to risks outside conventional domestic economic policy.
Concern about misuse of artificial intelligence rose to 36% from 29% in May, while the share identifying a global trade war increased to 31% from 24%.
Climate change and extreme weather were cited by 17%, up from 7%.
Those risks can require investment even during a period of weak confidence. Cybersecurity, AI governance, business continuity, compliance, and supply chain resilience can generate unavoidable spending before management considers discretionary growth projects.
The result is a more constrained capital-allocation environment, with businesses balancing investment intended to generate revenue against spending required to manage regulatory, operational, and technological risk.
The government is simultaneously seeking stronger private investment through industrial policy, regional growth programmes, and greater devolution.
Its ability to influence company spending will depend partly on whether businesses gain enough certainty over taxation, employment costs, energy, and regulation to model investments with greater confidence.
August’s IoD result marks a substantial improvement from July’s -63 reading but not a return to broad optimism.
Revenue expectations have strengthened and investment intentions are less negative, yet directors continue to operate with high cost expectations and a wide set of domestic and international risks.
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