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 found just 17% of responding firms plan to increase investment in plant, machinery or equipment over the next three months, down from 21% in the previous quarter, while 26% said they plan to cut back on investment and the remainder expecting no change.

Business confidence has also slipped, with 44% expecting improved turnover in the next 12 months, down from 49% in Q1, and 23% expecting it to decline. Less than a third (29%) reported increased sales over the previous quarter, while a similar number reported a decrease.

Concerns around inflation rose to nearly two thirds of businesses (66%), up significantly from 50% in Q1, with almost twice as many respondents citing fuel costs as a key pressure compared to the previous quarter, in light of the conflict in Iran. Labour costs remain the greatest price pressure, cited by 70% of responding businesses and felt most acutely by firms in the construction and engineering sectors.

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.

Retail and hospitality continue to be the sectors under most pressure. Just 31% of hospitality firms said they expect increased turnover, while 33% expect a decrease. Feedback from retailers was only slightly more positive, at 36% and 32% respectively.

Paul Cherpeau, chief executive of Liverpool Chamber, said:

“The cost of doing business remains high and sales growth is slow, and this is understandably having a negative impact on the confidence and investment intentions of many firms here in the Liverpool City Region.

“Not for the first time, we see retail and hospitality – two crucial sectors in our local economy – bearing the greatest brunt of those headwinds, while we know from our conversations with members in construction and engineering that they are especially feeling the burden of higher labour costs, which in turn is depressing their ability to offer apprenticeships or hire young people.

“Geopolitical uncertainty and punitive policies at home have created an almost instinctive aversion to risk among many business owners, who will need to see a clear path of future growth and fewer barriers to trade before they will consider making investment decisions.

“That’s the task at hand for the government – and the new Prime Minister – moving forward. They must cut red tape, reduce the tax burden, and deliver policies that incentivise, rather than stymie, ambition.”

What businesses in the Liverpool City Region said:

“The Iran war has had a huge impact on business confidence and our customers are postponing investments that they had planned to make. It has been the hardest quarter for us since the financial crash of 2008.”

“Despite having good rates of remuneration there is a severe shortage of skilled personnel available making recruitment and long-term expansion difficult. The business has taken on apprentices as a long-term option but will only see the rewards in 2 to 3 years’ time, placing extra financial pressures in the short term. Due to the cost of living crisis, customers’ average spend is down. Increase in Business Rates and increases in NIC’s & wages contributing to additional pressures.”

“Our current operating environment is becoming increasingly challenging due to rising

costs, growing demand for services and increasing expectations from clients. Costs

associated with staffing, software licensing, cybersecurity, insurance, utilities and compliance continues to rise year-on-year, placing pressure on operating margins. At the same time, we are committed to delivering value to our clients and have consciously absorbed many of these cost increases rather than passing them directly on. Whilst this approach has helped maintain strong client relationships and supported organisations facing their own financial pressures, particularly within the charity and third sectors, it has resulted in increased pressure on profitability.”

“We are extremely busy with good long-term orders. We need to invest and grow. High

taxation slows down the pace of recruitment and investment. New employment rules mean we are very careful in who we take on.”