Investment Slumps Reach Post-Pandemic Record Low

UK firms cut investment plans to lowest level since pandemic, the latest British Chambers of Commerce (BCC) Quarterly Economic Survey finds. Businesses warn of rising costs, weaker sales and growing uncertainty as confidence slips and inflation returns as the biggest concern. UK businesses have scaled back investment plans to their lowest level since the pandemic, as rising costs and economic uncertainty weigh on confidence.

The proportion of firms planning to increase spending on plant, machinery and equipment fell to 17% in the second quarter, down from 21% in the previous three months, according to the results. The survey, the UK’s largest independent measure of business sentiment, also found that fewer companies expect their turnover to improve over the next year, while inflation has returned as the leading concern among firms. Just 44% of businesses said they expected turnover to increase over the next 12 months, down from 49% in Q1. Meanwhile, 23% predicted a decline. The survey was carried out by the BCC Insights Unit and the UK-wide Chamber Network between 11 May and 8 June, with more than 4,700 businesses responding. Small and medium-sized enterprises accounted for 92% of respondents.

Firms delay investment as costs remain high
Investment intentions weakened sharply during the quarter, with fewer than one in five firms planning to increase spending. A quarter of businesses said they expected to cut investment over the next three months, while 57% said their plans would remain unchanged The slowdown was particularly severe in hospitality and retail. More than a third of hospitality firms (38%) and 35% of retailers said they had reduced investment plans. The survey found confidence had declined after a stronger start to 2026, with firms reporting pressure from higher costs and geopolitical uncertainty. The proportion of businesses expecting improved turnover fell to 44%, while those forecasting a decline increased to 23%, compared with 20% in the first quarter. Hospitality and retail firms remained among the most pessimistic sectors. Only 31% of hospitality businesses expected turnover to improve, while a third predicted a fall. Among retailers, 36% expected growth and 32% anticipated decline.

Inflation becomes biggest concern
Inflation emerged as the main concern for businesses, cited by 66% of firms compared with 50% in the previous quarter. Taxation was the second biggest concern, highlighted by 51% of respondents, while worries about borrowing costs increased to 29%. Concern over business rates eased slightly after rising earlier in the year, with 35% of firms citing them as a challenge. The number of firms reporting increased domestic sales fell to 29%, down from 32% in Q1. More than a quarter of businesses (28%) said sales had declined, while 44% reported no change. Hospitality recorded the weakest sales performance, with just 20% of firms reporting growth, while transport and logistics performed best at 34%. Fuel costs also became a significantly greater pressure, with 52% of businesses saying they were pushing up prices, compared with 28% in Q1. Labour costs remained the largest source of price pressure, however, cited by 70% of businesses. The impact was strongest in construction and engineering, where 78% of firms highlighted rising labour costs.

Businesses describe ‘challenging’ economic climate
One micro services firm in Yorkshire and The Humber said: “As a business owner, we are being taxed out of existence.” A small construction firm in the East Midlands said: “Increases in wages, National Insurance, utilities and supplier pricing continue to place pressure on margins, requiring careful stock management and investment planning.” A micro professional services firm in Yorkshire and the Humber said: “All businesses are suffering from higher taxation, increased labour and energy costs. This is stifling growth and investment.” A small construction firm in Hull and Humber said: “It’s a challenging and unpredictable climate, with geopolitical factors having a big impact.” A small hospitality firm in Cambridgeshire said: “General economic instability has made my clients more wary, and therefore less willing to spend on services.”

BCC warns of ‘risk-aversion cycle’
David Bharier, Deputy Director Economics and Insight at the British Chambers of Commerce, said businesses were becoming increasingly defensive after years of rising costs and uncertainty. “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.”