The proportion of firms planning to increase investment has fallen to its lowest level since the pandemic, according to the latest British Chambers of Commerce (BCC) Quarterly Economic Survey. The UK’s largest independent business sentiment survey also shows confidence weakened in Q2, with fewer firms increasing sales and inflation re-emerging as the leading concern.
The key survey findings:
- Only 17% of responding firms plan to increase investment, down from 21% in Q1
- Just 44% of businesses said they expected improved turnover in the next 12 months, down from 49% in Q1. 23% expect a decline
- Less than a third (29%) of firms reported increased sales over the previous three months, while 28% report a decrease
- Concern about inflation rose to nearly two thirds of businesses (66%) – up from 50% in Q1, with fuel costs nearly doubling as a cited pressure (now 52%)
The survey was carried out by the BCC Insights Unit and the UK-wide Chamber Network, with the fieldwork conducted between 11 May and 8 June. Over 4,700 businesses across the UK (92% SMEs) responded online.
Investment intentions slump to post pandemic low
With the cost of doing business still high, investment intention levels dropped significantly in Q2. Fewer than one in five (17%) responding businesses said they planned to increase investment in plant, machinery or equipment over the next three months. That’s the lowest level since the Covid pandemic, and down from 21% in Q1. A quarter (26%) of firms said they planned to cut back on investment, while the majority of responding businesses (57%) said their plans remained unchanged.
The slump in planned investment levels is more marked in certain sectors. Over a third of hospitality (38%) and retail (35%) firms reported they’d scaled back investment plans.
Confidence levels dip after strong start to 2026
Business confidence declined again in Q2 as firms dealt with the impact of the Iran conflict. 44% of firms said they expected their turnover to improve in the next 12 months (compared with 49% in Q1). The proportion of firms forecasting decreased turnover rose to 23% in Q2 (20% in Q1). Meanwhile, 34% said they expected no change in the next year.
Retail and hospitality continued to be the sectors under the most pressure. Only 31% of hospitality firms said they expected increased turnover, while a third (33%) expected a decrease. 36% of retailers said they expected improved turnover, while 32% expected a decrease.
Inflation worries jump significantly
With high domestic costs and geopolitical headwinds, inflation leapt to become the top concern for businesses in Q2, cited by 66% of firms (up from 50% in Q1). Half of firms (51%) cited taxation as a worry.
With interest rates expected to stay on hold in the coming months, concern about the cost of borrowing rose to 29% (up from 24% in Q1). Meanwhile, concerns about business rates eased to 35% after a spike earlier in the year.
Sales indicators decline across the board
The percentage of businesses reporting increased domestic sales in Q2 fell to a 29% (down from 32% in Q1). 44% reported no change, and over a quarter (28%) said they had seen a decrease in sales. Sectoral breakdowns show increased sales were at their lowest among hospitality firms (20%) and highest in the transport and logistics sector (34%).
Fuel costs grow significantly as a price pressure
With the conflict in Iran hitting global oil markets, the cost of fuel significantly increased as a price pressure in Q2. Over half of businesses (52%) said fuel costs were pushing up their prices, compared with just over a quarter in Q1 (28%).
But labour costs remained the main price pressure, an issue cited by 70% of responding businesses. This was felt most acutely by firms in the construction and engineering sector (78%).
The proportion of firms that said they expected to raise prices for customers in the next three months remained around half (48%) in Q2. A similar percentage (49%) expected to hold their prices. Only 3% planned a cut.
What businesses said:
“As a business owner, we are being taxed out of existence.”
Micro services firm in Yorkshire and The Humber
“Increases in wages, National Insurance, utilities and supplier pricing continue to place pressure on margins, requiring careful stock management and investment planning.”
Small construction firm in East Midlands
“All businesses are suffering from higher taxation, increased labour and energy costs. This is stifling growth and investment.”
Micro professional services firm in Yorkshire and the Humber
“It’s a challenging and unpredictable climate, with geopolitical factors having a big impact.”
Small construction firm in Hull and Humber
“General economic instability has made my clients more wary, and therefore less willing to spend on services.”
Small Hospitality firm in Cambridgeshire
David Bharier, Deputy Director Economics and Insight, at the British Chambers of Commerce said:
“The continued fall in SME investment sentiment is further evidence of a longer-term pattern that no single shock explains.
“Our data shows a risk-aversion cycle taking hold. Firms have not lost ambition, but years of compounding cost pressures and geopolitical shocks have produced defensive behaviour for the average SME.
“Most firms are now experiencing policy as downside risk rather than opportunity – with the rise in employer NICs a prominent example, still being felt almost two years on. Reducing the cost and complexity of the administrative burden would give many firms the space to grow.
“But more broadly, government policy needs to pass a ‘growth delivery test‘. Each proposal should start from the question of exactly how it will cause firms to increase investment, exports, hiring, or expansion. Until that test is being applied, our survey is likely to show the same pattern quarter after quarter.
“The challenge for the new Prime Minister and his team is clear.”
A full infosheet of the data can be found here