UK business leaders are increasingly pessimistic over wage growth and are concerned over cost expectations, according to a survey by the Institute of Directors (IoD). Despite the IoD’s economic confidence index increasing by seven points compared to March and expectations around headcount posting the first positive reading in more than six months, executives remain concerned over a £25bn tax increase for employers and the rise in the National Living Wage. The survey shows that while some firms plan to increase investments, uncertainty surrounding US tariffs continues to be a significant concern. Anna Leach, chief economist at the IoD, said: “There’s a strong sense of frustration amongst business leaders that the Government has been quick to raise their costs, but slow to deliver policies which will support them to grow their businesses.” Ms Leach has urged ministers to expedite pro-growth policies to alleviate pressures on businesses.

Britain’s manufacturing sector experienced a sharp decline in export orders last month, with demand falling at its fastest rate in five years due to trade uncertainties triggered by US President Donald Trump’s tariff policies. These tariffs, along with the threat of more, led to continued job cuts, reduced output, and a drop in new orders, pushing business confidence to its lowest since late 2022. S&P Global said its survey of manufacturers indicated “weak client confidence, trade uncertainty and generally quiet global markets that had all weighed on export demand.” S&P Global’s manufacturing PMI increased to 45.4 last month, from March’s 17-month low of 44.9, but remained below the 50 mark that separates growth from contraction.

Liz Ritchie, head of tax at Forvis Mazars UK, says the recent rise in employer National Insurance contributions – from 13.8% to 15% – and the reduction of the earnings threshold from £9,100 to £5,000 are forcing businesses to reconsider their operational bases. She warns that “many businesses simply won’t be able to operate sustainably in London due to these changes.” The impact is already evident, with hiring freezes and potential job cuts in the professional services sector. To adapt, she suggests, firms may need to explore regional hubs and leverage Government support schemes, such as apprenticeship programmes, to mitigate costs and maintain competitiveness. Analysis shows that since the start of the tax year, the average NI bill per employee has surged to £6,375, an increase of £1,075.

HMRC has significantly increased its investigations into potential underpayments of inheritance tax (IHT), launching nearly 4,000 inquiries in the past year — a 31% rise. Over the last three years, almost 10,000 cases have been opened, with over 2,600 still ongoing. In 2024 HMRC began 3,028 investigations into inheritance tax underpayments. In the year ending April 2023, it launched 3,163. This clampdown contributed to a record £8.2bn in IHT being collected last year. Between April and August 2024, HMRC earned more than £105m of inheritance tax through compliance checks, according to Evelyn Partners. Sean McCann of NFU Mutual highlights that the interest rate on overdue inheritance tax stands at 8.5%, which is the highest rate for 18 years. It is noted that from 2027, unspent pensions will be taxed as part of estates, increasing IHT liability for more families.

Polling company Gallup’s annual State of the Global Workplace report shows that manager engagement has fallen from 30% to 27%. This downturn is particularly stark in the UK, where only 10% of managers feel engaged. Gallup defines engaged workers and bosses as “highly involved in and enthusiastic about their work and workplace.” Jim Harter, Gallup’s chief scientist, noted that many managers are overwhelmed by evolving challenges, including changing customer demands and the rise of AI. Mr Harter says the issues are “all very solvable,” emphasising the need for clarity in roles, effective communication, and accountability to improve engagement. The report highlights that only 44% of managers globally have received any leadership training.

Lloyds’ chief financial officer, William Chalmers, says restrictions from the ring-fencing regime could hinder the lenders’ ability to help drive growth. Mr Chalmers warned that the regime – which requires major banks to separate their retail banking operations from their investment banking activities – “makes it harder for us to serve, in particular, large customers, and in some cases, at least reduces our lending capacity.” Lloyds’ chief executive Charlie Nunn has urged Rachel Reeves to scrap ring-fencing, co-signing a letter to the Chancellor alongside the bosses of HSBC, NatWest and Santander.

According to analysis, banks in the City of London have invested over $100bn (£75bn) into companies developing “carbon bombs,” which are large oil, gas, and coal projects that threaten to exceed internationally agreed climate limits. The study, conducted by the Leave It in the Ground Initiative, found that nine London-based banks, including HSBC, NatWest, Barclays, and Lloyds, financed at least 117 such projects across 28 countries from 2016 to 2023. Fatima Eisam-Eldeen, a lead analyst at the climate think-tank, said: “Despite the UK’s seemingly ambitious climate plans, it is astonishing how much money has flowed from UK banks to companies worldwide developing the biggest climate-wrecking projects.” The report reveals that if these projects proceed, they could generate 420bn tonnes of carbon emissions, equivalent to over a decade of current global emissions.

The UK is set to face challenges in accessing the EU’s €150bn defence fund due to French demands for a financial contribution. The Security Action for Europe (SAFE) initiative, established in response to US security threats, will require UK firms, such as BAE Systems and Babcock International, to negotiate terms for participation. Despite hopes for a new UK-EU defence partnership, access remains contingent on separate negotiations. The European Commission confirmed that a specific agreement is necessary for UK industries to participate in EU procurements, with strict rules limiting arms purchases to EU-linked countries.

Interest rates in the UK are expected to fall rapidly, marking the steepest six-month drop since the 2008 financial crisis. The Bank of England is likely to begin cutting rates from 4.5% to 4.25% next week, with a potential total reduction of up to one percentage point over the next six months. This move would lower borrowing costs to below 3% for the first time since 2022, easing pressure on mortgage holders. Barclays said that they expected rates to fall to 3.5% by September, while Morgan Stanley predicted policymakers would eventually reduce rates to as low as 2.75% during the first half of 2026. Major banks have already started reducing fixed mortgage rates, with significant savings for homeowners.

The shift towards a cashless economy has accelerated, with cash payments plummeting to just 12% in 2023, down from 51% a decade ago. The Treasury Committee warns this trend could create a “two-tier society,” leaving vulnerable groups, such as the elderly and low-income individuals, at risk of exclusion. While many consumers prefer the convenience of contactless payments, concerns about reduced consumer choice and budgeting capabilities have emerged. The committee suggests that if adequate safeguards are not implemented, there may be a future need to mandate cash acceptance. Dame Meg Hillier, chair of the committee, said: “The Government is in the dark on how widely cash is being accepted and that is completely unsustainable… this needs to be a wake-up call.”