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The pound is to remain pressured by the euro and dollar over the coming weeks as flatlining business confidence points to an economic slowdown.
The UK's largest business survey was released overnight, and it revealed subdued confidence amidst worries over taxes and inflation, raising fears for Britain's economic growth outlook.
Tax and inflation are the top concerns for "bruised" businesses, says the British Chamber of Commerce (BCC) in its 3rd-quarter business survey, finding that only 48% of firms are expecting increased turnover in the next 12 months.
21% expect a decrease.
These are damning findings for the government and point to a worrying loss of altitude for the economy, which will weigh on the pound.
"With the Autumn Budget 2025 in focus, we remain bearish on sterling, due to weakening growth prospects," says a note from analysts at bank J. Safra Sarasin.
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Above: A downward sloping trend line has emerged in GBP/EUR. Secure current rates for use at a later date if you are concerned about market direction.
According to the BCC report, most firms "remain bruised, with no improvement to business sentiment."
"The outlook for the UK economy remains blurry," says Marc Cogliatti, Global Capital Markets Director at Validus Risk Management. "There is little reason to be bullish on the pound."
Traders agree: the pound to dollar exchange rate (GBP/USD) has fallen for three days in succession, declining from 1.35 and is at 1.3310 at the time of writing Friday.
This is a new two-month low.
The pound to euro exchange rate (GBP/EUR) rallied to 1.1548 by midweek, but has since topped out and retreated back to 1.15 at the time of writing.
Technical indicators suggest both of the key Sterling currency pairs are prone to further losses in the coming days and weeks.
Above: GBP/USD at a new two-month low.
The BCC survey reveals tax remains the biggest concern for businesses following the employer National Insurance Contributions rise in April; 59% of businesses cite tax as a worry, up from 56% in Q2.
For the Bank of England, there are some striking findings that would suggest a need for caution when considering cutting interest rates again in November as the BCC reports "a sharp rise in concern about inflation."
The survey revealed 57% of firms cite inflation as a concern, up from 52% in Q2, which is the highest level since the start of 2024. This as 29% of firms report a fall in cash flow, while for 46%, cash flow remained the same.
"The Employer NICs increase has been the most widely cited source of pressure, hitting investment and pushing up prices," says David Bharier, Head of Research at the British Chambers of Commerce.
Yet, worries about interest rates remain at relatively low levels, cited by a quarter of responding businesses (25%).
This week we heard Bank of England Chief Economist Huw Pill warn that the Bank must prioritise the fight over inflation above other considerations. His words are given greater weight by these real-world findings from the BCC.
The fingerprints of government policy are all over this loss in confidence, and the budget due for November 26 will likely see taxes ratcheted up once more as the government tries to plug another multi-billion pound black hole.
With the big-ticket taxes of income tax, VAT and National Insurance exempt from tax rises, investors and businesses will inevitably have to take a hit.
Given that investors and business investment are the growth engines of the economy, investment is likely to suffer.
Indeed, the BCC survey reveals the weak confidence amongst businesses is translating into weak investment intentions.
A quarter of businesses say they have cut back on investment plans, and the majority of firms, 54%, say their investment strategy has remained the same, while 21% have increased their plans.
"Persistent weak sentiment this quarter may suggest that many firms have already priced in a tough Budget. But further surprise measures that hit business, like those seen in 2024, could drive confidence even lower," says Bharier.