Less gloom, no boom – businesses remain nervous about the economy

Business confidence bounces back – but Britain's firms still fear the worst

Britain's businesses are feeling less miserable, but they're certainly not celebrating. The latest ICAEW Business Confidence Monitor shows a dramatic improvement in sentiment, with the confidence index jumping from minus 14.6 to minus 0.5 in just three months. Yet pessimism still outweighs optimism for the seventh consecutive quarter, and the pressures keeping business owners awake at night haven't disappeared. Rising costs, late payments, weak hiring and geopolitical uncertainty mean small and micro businesses have little reason to believe the worst is behind them.

BUSINESS CONFIDENCE IS LESS NEGATIVE

Confidence has rebounded sharply this quarter, but it’s still negative and equal to the record-breaking slump. That’s the headline from the Institute of Chartered Accountants of England and Wales (ICAEW) in their Q3 2026 Business Confidence Monitor.

The index rose from minus 14.6 in Q2 to minus 0.5 in Q3. Despite the bounce this is still the seventh consecutive quarter where pessimism outweighs optimism. 

This is just a pause in the decline of confidence and the underlying pressures are still the same for businesses.

Confidence up; Expectations down

Sales and profits held up better than expected in Q3, but businesses have already downgraded their expectations for the next twelve months. This is the classic pattern of a fragile recovery. Conditions look stable today, but firms don’t trust the outlook.

For small and micro businesses, this means customers are likely to go on spending cautiously, delaying purchases and avoiding commitments.

Geopolitical Risk

Three in five firms cite geopolitical risk as their biggest challenge. The Middle East conflict hostilities pushed up oil and gas prices again during the time the survey was carried out, derailing what had looked like a return to positive confidence. For small businesses it’s down to higher energy bills, higher transport costs and more volatility in customer demand.

Cost Pressures

Labour costs are a concern for just over half of businesses. Energy costs affect forty five percent. Regulation and tax are still big obstacles. These pressures hit small and micro firms disproportionately because they have less buffer and fewer ways to absorb rising costs.

Hiring Slowing

Employment growth has fallen to its weakest rate since early 2021. It’s not a hiring freeze, but it is a clear sign that businesses are cautious. For micro employers, this means recruitment may be easier, but wage expectations will stay high because labour costs are rising.

Late Payments

Late payment concerns are at a five year high. Construction, IT and transport firms are suffering the worst payment delays. For small businesses, late payments aren’t just an inconvenience; they’re a cashflow threat. In a quarter where confidence is still negative, late payments become even more dangerous.

Investment Shifting

Despite the pressures, businesses are investing in productivity and efficiency. R&D growth is at its fastest rate since Q3 2022. IT and communications lead the way, with R&D growth of four percent. Larger businesses are investing in technology to cut costs and improve efficiency. Small firms that don’t modernise risk falling behind.

Labour costs, energy and late payments are holding businesses back:

Expect cautious customers Even with the rebound, expectations for future sales are weaker. Customers will go on delaying spending and avoiding risk.

Prepare for cost volatility Energy, labour and regulatory costs are still high. Build contingency into pricing and cashflow planning.

Watch late payments closely With confidence still negative, late payments will probably go on rising. Tighten credit control and shorten payment terms if at all possible.

Invest in efficiency The wider market is investing in productivity. Small firms that can adopt low-cost digital tools, automation and streamlined processes will be the winners.

Stay alert to geopolitical shocks Oil and gas price spikes can hit transport, supply chains and customer behaviour very quickly.

No Recovery

The Q3 2026 Business Confidence Monitor shows a rebound, but not a recovery. Confidence is less negative, but still negative. Costs are still rising, hiring is slowing, late payments are getting worse and geopolitical risk is the main threat. For small and micro businesses, there’s no sign of stability yet. Resilience, cashflow and agility are the key to survival.