In the largest survey of business sentiment since April’s employer National Insurance rise, the latest Quarterly Economic Survey shows confidence among firms remains weak.

While price rise expectations have eased back from near historic highs in the previous quarter, tax remains the biggest concern cited by firms, while only a third say domestic sales have grown over the last three months.

More than 4,500 businesses across the UK (93% of whom are SMEs) responded online to the survey, which was carried out by the BCC Insights Unit and the wider UK Chamber network, including Chambers in Liverpool, Knowsley and Halton, between 12 May and 9 June, after the National Insurance rise came into force.

Business confidence remains subdued

Levels of confidence among businesses remain weak, with just 55% of responding firms from the LCR expecting their turnover to increase over the next 12 months. That’s slightly higher than the national average of 48%, which remains the second lowest figure since the aftermath of the mini budget in late 2022. A fifth of businesses here and nationally expect turnover to worsen, while the remainder expect no change.

Profitability expectations are more cautious. Only 43% of LCR respondents foresee positive change, and 35% expect a decline, signalling that profitability concerns remain acute, particularly among SMEs facing rising costs and policy uncertainty.

Confidence levels remain lowest in the hospitality sector (33%) and retail (44%), showing the continued struggles these sectors face.

Fewer firms planning to increase their prices

The proportion of LCR businesses saying they expect to raise their prices in the next three months stands at 48% – marginally higher than the UK average – but down from a near-historic high of 55% in Q1.

This suggests a moderation in new price rises after firms made adjustments ahead of the NICs increase. Just over half say their prices are likely to remain the same, suggesting that while inflationary pressures remain, the pace of price increases may be slowing.

Labour costs continue to be far and away the main cost pressure for firms. In the LCR, 85% of firms cited this as a cause, compared to only 73% nationally, reflecting a disproportionate upward squeeze on businesses here. The issue is most significant for transport and logistics businesses (88%) followed by the hospitality sector (83%).

Tax remains the biggest concern as NI rise bites

Following the employer NIC rise at the start of April, tax continues to be the biggest worry for businesses. This figure (56%) has eased slightly at a national level, but in the LCR it remains high at 73%. The UK figure is the third highest on record, following the previous two quarters.

Concern about inflation also remains high among businesses. Again, the figure in the LCR is significantly higher than the UK picture, with 62% here compared with 52% nationally. Worries about interest rates continue to fall at broadly the same level – 24% down from 28% in Q1.

These concerns are echoed in qualitative feedback, with many businesses highlighting the impact of National Insurance increases, rising wage bills, and policy uncertainty on their ability to invest and grow.

No significant improvement in business conditions

The percentage of responding businesses reporting increased domestic sales is markedly higher in the LCR than the national average, with 41% of LCR firms reporting more UK sales in the past three months, compared to 35%.

Hospitality firms (36%) and the retail sector (34%) were most likely to have seen a fall in sales.

26% of businesses report an increase in cash flow during this quarter, up from 21% in the previous quarter. 30% report a fall (down from 33% in Q1), while for 45% cash flow remained the same.

Export activity remains subdued, with only 21% of UK firms seeing increased export sales and 16% reporting growth in export orders.

Most firms struggling to invest

As UK businesses face increased cost pressures, nearly a quarter (24%) say they have cut back on investment plans (compared with 26% in Q1). 55% of firms say their investment strategy has remained the same, while only 21% have increased their plans.

Investment in plant, machinery, and training remains flat – fewer than 30% of firms increased investment and around 30% reduced or deferred investment plans.

The issue is more marked in certain sectors, with 39% of hospitality firms and 32% of transport firms reporting a scaling back of investment plans.

Recruitment Challenges Continue

In the LCR, 62% of firms attempted to recruit in the past quarter and of those 59% faced difficulties, especially in hiring professional/managerial and skilled technical staff. The majority of recruitment was for full-time and permanent roles, indicating long-term workforce needs.

What LCR businesses say:

“Rising employment costs, including increases in National Insurance and minimum wage, are placing significant pressure on margins—particularly for SMEs. More meaningful support in the form of business rates relief, incentives for hiring and training staff, and targeted assistance for utility and energy costs would provide vital breathing space for businesses trying to remain competitive in a difficult trading environment.”

“We are having to work harder for less, staff are under strain. Jobs are being shed. Confidence is low. No investment and Business is retracting. Taxation is high and redundancies will happen.”

“Our current operating environment is becoming increasingly untenable due to the continuous pressure on the bottom line. The constant margin erosion from all the items listed above and government policies that hugely impact the SME’s ability to invest and grow will continue to support the growing trend of insolvencies, increasing skills gap, and total lack of confidence.”

“Our order book is growing and that will continue in the future, but I am very concerned about Government proposals on employee’s rights. In a highly skilled industry you need time to assess new employees’ ability to meet standards. New proposals of instant rights from day one will affect decisions to employ new people.”

Paul Cherpeau, chief executive of Liverpool Chamber, adds:

“It is clear that business confidence has yet to recover from the multiple shocks of increases in employer NI contributions and the national minimum wage, amplified by geopolitical factors and the implications of the new Employment Rights Bill.

“Many firms will continue to hold back from making investment decisions until the path becomes clearer, which could have ramifications for the city region and UK economy in the meantime.

“The recently announced Industrial Strategy provides some level of roadmap but businesses need consistent, funded policies around skills, investment and a promise that there are no more taxes on business lurking around the corner.”