Business confidence bounces back—but the Budget could kill it

Small firms feel brighter as tax fears threaten recovery

Business confidence has reached its highest level since March, with the Lloyds Business Barometer rising four points to 53%. Customers are still spending and economic optimism is improving—but for microbusinesses, one punishing Budget could burst this fragile bubble overnight.

BUSINESS CONFIDENCE IS UP: CAN WE BUDGET FOR IT?

Business confidence is up, again. It has climbed to its highest level since March, driven by resilient consumer spending and a rare period of calm ahead of the Budget. Can it last?

The Lloyds Business Barometer shows confidence rising four points to 53%, with optimism about the wider economy jumping seven points to 49%. Bosses say customers are still spending despite the Iran war’s impact on energy and shipping, inflation risks and speculation about the budget. Even the household energy bills rising 4% from October doesn’t seem to be dampening optimism.

This resilience has given firms a psychological lift, but microbusinesses need certainty to really move the dial on investment for growth. Will this confidence survive the Budget?

Higher footfall and stronger cashflow

Consumers are still spending, even with energy prices rising and geopolitical shocks continuing. This is boosting all sorts of high street businesses from hospitality to hairdressers, small retailers to local service providers

Microbusinesses are affected quicker by shifts in confidence than large firms. When customers spend, they survive; when they don’t spend the impact is dire.

Easing cost pressures

Lloyds reports fewer firms expect to raise prices next year. That means there’s less pressure to pass on costs to customers and margins are more stable. All that allows businesses to plan more effectively and there’s fewer shocks to customer demand. Stability is gold for microbusinesses.

Uncertainty

Confidence is rising according to other surveys too. The Institute of Directors Index shows confidence up from -63 in July to -49 in August with ‘uncertainty’ the key word in the findings. Barclays says businesses are keener to invest, but only if there’s more certainty around policy. Microbusinesses may feel able to upgrade equipment, go digital, recruit people and expand product lines, but the budget lands them with more costs, that ambition will go out the window.

Speculation

Confidence is rising because speculation about tax hikes has been kept to a minimum. However, with the budget looming a few weeks from now there are risks:

Headroom is tight

Economists estimate the government has £8–£15bn of fiscal headroom, which basically means there between £8 and £15bn to play with. That’s not enough to avoid difficult decisions and makes it more likely that there will be tax rises, new levies, and that reliefs and allowances will be reduced.  Any of these could hit microbusinesses directly.

Energy prices

The Iran war has pushed Brent crude up 40% this year, and refined oil products like diesel and kerosene that depend on Brent have doubled in price. Higher energy costs always hit microbusinesses hardest and suck up a bigger proportion of their income.

Confidence could reverse quickly

GfK shows consumer confidence is at a two‑year high but fragile. If the Budget raises household taxes or cuts support, spending will fall.

Businesses are waiting

Barclays finds firms are ready to invest but only if the government holds the environment stable. Almost a third of small and micro businesses want business taxation reformed or reduced. If the Budget disappoints, confidence will drop sharply.

Microbusinesses need

To sustain this fragile uptick in confidence, we have to avoid the mistakes made over the last 10 years, that pushed business costs up by 70% and hit microbusinesses hardest.

No new taxes on hiring: employer NICs are the biggest barrier to job creation.

Stable energy cost and protection from volatile standing charges and out‑of‑contract rates.

Tax simplification: £15bn in compliance costs is choking microbusiness growth.

Business rates reform: high‑street independents need fairer valuations and relief.

Policy certainty: confidence collapses when rumours of tax rises dominate the news.

Support for EU trade improvements: plans to boost EU trade could add “percentage points” to growth and that’s vital for small exporters.

Fragile

Business confidence is rising because consumers are spending that little bit more and because the government has kept speculation about the budget quiet so far.

But this confidence is fragile. For microbusinesses, everything depends on whether the Budget:

• avoids new taxes

• stabilises energy costs

• simplifies compliance

• supports hiring

• improves trade

• delivers policy certainty

If the PM and the Chancellor get this right, microbusinesses will invest, hire and grow. If they make a mess of it, confidence will evaporate and the confidence of the UK’s most vital businesses will disappear like the air in a pricked balloon.