British business confidence index soared to an eight-month high, strengthening expectations that the central bank will stay put.

The UK Business Confidence Index has risen to its highest level in eight months, further proving that the UK economy may regain growth momentum after the budget announcement. According to the Institute of Directors (IoD), the business confidence index jumped from -66% in December 2025 to -48% in January 2026, continuing a rebound trend since near historic lows. Although the index is still in negative territory, UK chief executives' confidence in their own companies rose to +14% in January, compared to -4% in December. Specifically, UK businesses have significantly improved their expectations for investment, recruitment, and sales. This survey is the latest indication that the UK economy is showing signs of recovery in the second half of 2025, amid speculation surrounding the Labour government's tax-raising budget on November 26. This was followed by a significant increase in the UK PMI in January, reaching its highest level in 21 months, mainly driven by technology and financial services companies. Although UK Chancellor Rachel Reeves revealed plans to further increase tax revenue by 26 billion ($36 billion), UK households are undoubtedly bearing the brunt of tax increases, while most businesses are exempt. Bars and live music venues, which play an important role in the UK economy's service industry indicators, are also receiving support from the Chancellor, following strong opposition from businesses such as bars to sharp increases in business tax rates. "After a record low last year, the data in January can be said to witness a welcome and quite significant rebound in the confidence index of business leaders," said Anna Leach, Chief Economist of the Institute of Directors. "As the new year begins, the overall government policy stimulus is strong, including a series of plans aimed at supporting business profit growth." The UK Institute of Directors, representing British business leaders, company directors, and executives, stated that income expectations unexpectedly reached their highest point since September 2024. Key indicators tracking employee numbers and investment intentions also saw significant increases, although they still slightly remain in negative territory. The strong confidence index released by the Institute of Directors, along with the UK PMI index reaching its highest level in 21 months, and the key inflation index for UK shops rising to its highest level in nearly two years, may lead the Bank of England to be more inclined to wait and observe rather than rush to continue cutting interest rates. The simultaneous rise in UK business confidence and PMI can be said to be the strongest signal of recent "recovery signs" in the UK economy, and the increase in key inflation indicators (such as retail prices/food prices) jointly set a higher threshold for Bank of England interest rate cuts. Therefore, the Bank of England is more likely to choose to wait and wait for clearer trends in its decision-making path, consistent with stronger economic data and slightly stubborn inflation pressures. Economists generally expect the Bank of England to maintain its interest rate at 3.75% this Thursday, and it is widely believed that the Bank of England will only cut interest rates once this year. Since August 2024, the Bank of England's Monetary Policy Committee has been cautious, gradually lowering interest rates from 5.25%. There is still some disagreement among its nine members on the ultimate target interest rate - economists expect the "neutral" rate to be between 3% and 3.5% - but minutes from the last meeting in December showed that unless there are unexpected circumstances, they have agreed to slow down the pace of rate cuts.