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UK Business Optimism Improves Slightly After Budget

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  Published in Business and Finance on Tuesday, January 6th 2026 at 2:30 GMT by reuters.com

UK Businesses Show Flickers of Optimism After Budget, But Challenges Remain

The mood amongst major UK businesses is cautiously improving after Chancellor Jeremy Hunt’s latest budget announcement, according to a survey released on January 6th by MakeUK, the manufacturers' organization, alongside PwC. While not marking a dramatic turnaround, the data reveals a slight uptick in optimism and suggests that some of the government’s proposed measures are beginning to ease concerns amongst key sectors. However, significant headwinds persist, and the overall economic picture remains complex.

The headline figure is a rise in MakeUK's Quarterly Outlook Survey. The survey showed an improvement from -18% last quarter to +3% for the coming three months. This represents the first positive reading since Q4 2022 – a period marked by considerable uncertainty following the mini-budget crisis and subsequent economic turbulence. The survey polled over 500 senior business leaders across various industries, including manufacturing, services, and engineering.

Budgetary Measures Contributing to Optimism:

The boost in optimism is largely attributed to several key announcements within Chancellor Hunt’s budget. Chief amongst these is the extension of full expensing for capital investment. This allows businesses to immediately deduct the cost of qualifying investments from their taxable profits, effectively incentivizing them to invest in new equipment and technology. The government estimates this measure will provide a £20 billion annual tax relief for UK businesses. As reported by Reuters, business groups have hailed this as crucial for boosting productivity and competitiveness.

Another welcomed element was the reduction in National Insurance contributions (NICs) by 2 percentage points. This cut, impacting employees and employers alike, is designed to stimulate employment and disposable income. While the impact of this change will be gradual, businesses anticipate it could help alleviate labor shortages and potentially boost consumer spending – a key driver for many sectors. The government hopes that these changes will collectively contribute to economic growth and reduce inflationary pressures.

Furthermore, the announcement regarding investment zones, while not entirely new, received renewed attention with commitments to continue supporting them. These zones offer targeted incentives to attract businesses and create jobs in specific areas of the country. Though their effectiveness has been debated (as noted by The Guardian), they represent a visible effort by the government to address regional economic disparities.

Persistent Challenges & Lingering Concerns:

Despite this nascent optimism, the survey also highlights significant challenges that continue to weigh on UK businesses. Inflation remains a major concern, although its peak appears to have passed. While inflation has slowed from its highs in 2023, it still sits above the Bank of England’s target of 2%, and the cost of living crisis continues to impact consumer spending power. The Reuters article references data indicating that while inflation is easing, real wages are only just beginning to recover lost ground.

Labor shortages persist across numerous sectors, hindering growth and putting upward pressure on wages. The survey highlighted difficulties in recruiting skilled workers, exacerbated by Brexit-related restrictions on immigration and an aging workforce. Businesses are increasingly resorting to automation and upskilling programs to address these gaps, but these solutions take time and investment.

Geopolitical instability – particularly the ongoing conflict in Ukraine and tensions with China – continues to create uncertainty for businesses involved in international trade. Supply chain disruptions, while less severe than during the pandemic, remain a potential risk. The budget offered limited specific support for mitigating these global risks.

Sector-Specific Perspectives:

While overall optimism is slightly positive, perspectives vary across different sectors. Manufacturing, traditionally a cornerstone of the UK economy, expressed particularly cautious optimism, citing concerns about global demand and rising energy costs. The services sector, which accounts for a significant portion of UK GDP, displayed more moderate optimism, reflecting ongoing challenges in consumer confidence. Engineering firms, often reliant on capital investment, were generally positive due to the full expensing extension.

Looking Ahead:

The MakeUK/PwC survey suggests that Chancellor Hunt’s budget has at least temporarily alleviated some anxieties amongst major UK businesses. The extension of full expensing and the reduction in NICs are viewed as positive steps towards stimulating investment and employment. However, the recovery remains fragile. The effectiveness of these measures will depend on broader economic conditions, including inflation rates, global trade patterns, and consumer behavior.

As noted by PwC’s Chief Economist, Emily Carter, “While the budget has provided some short-term relief, businesses remain cautiously optimistic and are still navigating a complex operating environment.” The survey underscores that sustained economic recovery requires more than just budgetary tweaks; it demands structural reforms to address long-term challenges like skills gaps, productivity stagnation, and regional inequalities. Future surveys will be crucial in tracking whether this nascent optimism translates into tangible improvements in business performance and overall economic growth for the UK.

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