UK Business Confidence Climbs to Eighteen-Month High as Economic Headwinds Ease
British businesses are entering the second half of 2026 with a renewed sense of optimism, according to the latest quarterly survey from the British Chambers of Commerce (BCC). The confidence index, which tracks sentiment across manufacturing, services and retail, rose to its highest level since January 2025, driven by cooling inflation and a more stable interest rate environment.
The survey of more than 5,000 firms found that 58 per cent of respondents expect turnover to increase over the next twelve months, up from 51 per cent in the first quarter. Investment intentions also strengthened, with 37 per cent of manufacturers planning to increase capital expenditure compared to 31 per cent six months ago.
“What we are seeing is not euphoria but a steady, hard-won improvement in the operating environment,” said Shevaun Haviland, Director General of the BCC. “Inflation is back under control, supply chain disruptions have largely normalised, and businesses are beginning to plan beyond the next quarter again.”
The services sector, which accounts for roughly 80 per cent of UK economic output, showed particularly strong momentum. Professional services firms reported the highest levels of confidence since the survey began tracking sector-specific data in 2022. Legal, accounting and management consultancy practices all cited growing client pipelines and an uptick in merger and acquisition activity.
The Bank of England’s decision to hold the base rate at 4.25 per cent in its June meeting provided additional stability for firms managing variable-rate borrowing. Several lenders have since trimmed fixed-rate mortgage and business loan products, offering further relief to the SME sector.
However, the picture is not uniformly bright. Retailers continue to face margin pressure from elevated wage costs following the April increase in the National Living Wage. The BCC noted that 42 per cent of hospitality and retail businesses still describe trading conditions as “challenging” or “very challenging.”
Export-oriented manufacturers also expressed caution around trade policy uncertainty, particularly regarding potential tariff adjustments between the UK and its European trading partners. Nearly one in three firms with significant EU exposure reported delaying investment decisions pending greater clarity on regulatory alignment.
Despite these caveats, the overall trajectory points towards a cautiously expanding economy. The BCC has revised its GDP growth forecast for 2026 upward from 0.9 per cent to 1.2 per cent, citing resilient consumer spending and stronger-than-expected business investment in the technology and life sciences sectors.
“British business has been running uphill for three years,” Haviland added. “The gradient is finally starting to flatten.”