By LONDON (Reuters) – British firms have grown more downbeat about the outlook as concerns about the tax impact of the new Labour government’s upcoming autumn budget and conflict in the Middle East dampened sentiment, a survey showed on Tuesday.
The British Chambers of Commerce said 48% of 5,152 companies it surveyed between Aug. 19 and Sept. 16 reported that taxation was a main area of concern ahead of the budget. This is up from 36% in the previous survey.
“Many businesses are increasingly anxious about the direction of economic policy, and taxation has now become their primary concern,” David Bharier, BCC head of research, said. “The major escalation in the Middle East conflict will also be a significant factor.”
British finance minister Rachel Reeves, who is due to make her inaugural tax-and-spending autumn statement, has warned some taxes might increase in the Oct. 30 budget.
Reeves is expected to change the government’s fiscal rules for bringing down public debt, which could pave the way for more borrowing, potentially helping to boost investment and economic growth.
British government debt in August hit 100% of economic output – levels not seen on a sustained basis since the early 1960s.
The BCC survey showed 56% of businesses expected turnover to increase over the next 12 months, down from 58% in the second quarter, and most no longer expected profits to rise.
Just over one in five said they had increased investment.
“Investment levels remain the Achilles heel of the UK economy. Despite interest rates starting to fall and inflation easing, most SMEs (small and medium-sized firms) are still hesitant to invest,” Bharier said.
Worries about interest rates and inflation continued to decline, the BCC said.
The Bank of England is expected to reduce borrowing costs at its next meeting in November after its first cut in more than four years in August and a pause in September.
