Businesses Warn of 'Running to Stand Still' Under Labour Due to Surging Costs

Businesses are struggling with escalating costs under the Labour government, leading to a "run to stand still" scenario and a notable decline in boss confidence, according to a recent report. The figures from the Institute of Directors (IoD) have overshadowed an upward revision to UK growth.

The IoD's business confidence reading dropped to minus 54 in September, a decrease from minus 49 in August. This subdued sentiment in the private sector could hinder Prime Minister Andy Burnham's efforts to stimulate economic growth and job creation.

Anna Leach, the IoD's chief economist, stated that persistent cost pressures are squeezing profit margins, forcing some companies to operate without making progress. She noted that intentions for investment and hiring remain low.

According to the report, businesses have been affected by increased National Insurance rates, a rise in the minimum wage, and new worker protections. Global events, such as conflict impacting oil and gas prices, and the costs associated with net-zero policies, are also contributing factors.

Businesses are anticipating that Chancellor John Healey will address these concerns in the upcoming Budget. Leach emphasized that companies are looking for the Budget to provide greater cost certainty and concrete actions to improve the financial viability of investing and hiring, particularly by addressing high energy costs.

Separately, a report from EY indicated that corporate borrowing growth is projected to slow to 2.1 percent this year, down from 5.3 percent in 2025, as firms adopt a more cautious approach to lending. Martina Keane, EY's UK and Ireland financial services leader, cited ongoing geopolitical tensions as a source of uncertainty.

Despite these challenges, the UK economy has shown resilience. Revised figures from the Office for National Statistics (ONS) revealed that the economy grew by 0.5 percent in the second quarter, an upward revision from the previous estimate of 0.4 percent. The ONS also revised last year's GDP growth to 1.2 percent from 1.3 percent.

Valentin Boboc, an economist at the IEA think-tank, described the ONS upgrade as "promising" but urged the government to further ease the burden on businesses and workers through lower taxes, reduced regulation, and cheaper energy. He warned that further tax increases could jeopardize the growth the Chancellor aims to achieve.