A record number of bosses fear cost increases in the coming year amid tax raids, energy bills and pay rises, according to a leading trade group survey.
A total of 89pc of business leaders expected costs to increase in the coming year with just 2pc anticipating a fall, the Institute of Directors (IoD) study found.
Optimism is also through the floor, with a net balance of 64pc of business leaders expressing pessimism – close to a record reached in the pandemic.
Almost half of bosses said they will reduce employment because of Rachel Reeves’s £25bn National Insurance raid coming into force next month.
Two fifths expected to raise prices to cover some of the costs of the tax increase.
Anna Leach, the chief economist at the IoD, said companies were also cutting back on investment.
“Amidst downgrades to UK growth forecasts, businesses remain concerned about the health of the UK economy, as well as tax and regulatory burdens. Our engagement with business leaders reveals that they’re increasingly worried about inflation, the cost of energy and the repercussions of policy decisions in the US,” she said.
“As businesses adjust to an evolving cocktail of costs and risks, around half are expecting to reduce employment in response to rising costs, with price increases also being considered. Meanwhile, investment intentions have dipped further, as businesses expect tax increases to hit their bottom line more than previously.”
It came as the Bank of England’s deputy governor said policymakers must not cut interest rates too quickly because inflation is rising and productivity remains weak.
Sir Dave Ramsden dashed hopes of a faster drop in borrowing costs as he warned that pay growth was much stronger than he expected.
The former Treasury official, who called for faster rate cuts last year, pointed to “increased uncertainty” in the economy against a backdrop of rising prices and weaker growth.
The Bank cut rates in February to 4.5pc. However, inflation hit 3pc last month and is forecast to rise to close to 4pc towards the end of the year, almost double the Bank’s target.
While Sir Dave said there was still a risk that Ms Reeves’s record tax raid could inflict more damage to growth through faster job losses, he said he no longer believed the Bank would have to cut rates more quickly to support the economy because of the risk it could stoke inflation.
Sir Dave said: “Because of the evidence of recent months I no longer think that risks to hitting the 2pc inflation target sustainably in the medium term are to the downside. Instead, I think they are two-sided.”
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