London, UK — Business confidence among UK leaders experienced a significant deterioration in June 2025, with a key index recording a sharp decline that has erased approximately half of the gains observed since November.
The Institute of Directors (IoD) Directors’ Economic Confidence Index, which serves as a barometer for the sentiment of UK business leaders, fell to -53 in June. This marks a substantial drop from the -35 recorded in May, indicating a rapid erosion of optimism within the corporate sector.
Key Indicators Worsen
The downturn was not confined to overall sentiment. Confidence among business leaders regarding the outlook for their own organisations also saw a marked decrease, dropping to +3 in June from a more robust +15 in May. This suggests that the challenging external environment is beginning to impact perceptions at the individual company level.
Underpinning this decline were worsening expectations across several critical forward-looking metrics:
Investment intentions, a key indicator of plans for future capital expenditure and growth, fell into negative territory, registering -10 in June compared to a stable ±0 in May. This shift from neutrality to contractionary expectations highlights potential concerns about future business expansion.
Revenue expectations also significantly decreased, sliding to +8 from +18 the previous month. While still positive, the sharp drop indicates a less optimistic outlook for sales performance.
Export expectations, reflecting confidence in international trade opportunities, dropped from +9 to +4, suggesting a weakening sentiment regarding overseas markets.
Headcount expectations, a measure of hiring intentions, declined sharply from -1 in May to -10 in June. This move further into negative territory signals a less favourable outlook for employment growth within UK businesses.
Cost and Wage Pressures
Amidst the broad decline in optimism and forward-looking indicators, there was a slight easing in expectations around costs. Cost expectations reduced marginally to +81 in June from +83 in May. However, the figure remains highly positive, indicating that despite the slight decrease, businesses still anticipate significant cost pressures.
Wage expectations also fell, moving to +40 from +45. While this drop might suggest some moderation in anticipated wage growth, the figure still points to expectations of substantial pay increases.
Expert Analysis: Linking Tax Measures and Uncertainty
Anna Leach, the Chief Economist at the IoD, attributed the challenging business conditions reflected in the June data to a confluence of factors, prominently citing measures introduced in the Autumn Budget.
Specifically, Leach highlighted the impact of tax measures, pointing to changes made to national insurance, business property relief, and agricultural property relief as significant contributors to the erosion of business confidence. She noted that these tax increases on businesses have, in her view, undermined the ambition of the recently launched industrial strategy.
In addition to domestic fiscal policy, Leach also cited increasing global uncertainty as a contributing factor to the prevailing pessimism among UK business leaders.
Undermining Strategy
Leach’s commentary underscores a concern that fiscal policy changes, intended perhaps to address other economic priorities, may be working at cross-purposes with broader government aims, specifically the ambition embedded within the recently launched industrial strategy which seeks to foster growth and innovation.
Conclusion
Overall, the June 2025 IoD Directors’ Economic Confidence Index paints a picture of rapidly deteriorating sentiment within the UK business community. The significant fall, erasing half of the gains made since November, coupled with negative or sharply declining expectations across key areas like investment, headcount, revenue, and exports, indicates a growing apprehension about the current and future economic climate. The analysis from the IoD’s Chief Economist points towards specific domestic tax measures and ongoing global instability as primary drivers behind this concerning trend.
