British entrepreneurs' pessimism about the economic outlook eased markedly at the start of 2026, with the IoD Directors' Economic Confidence Index rising to -48 in January from -66 in December.

This marks the highest reading since May 2025 and extends gains since the November budget, which avoided steeper immediate tax hikes than feared. The upturn aligns with improvements in other indicators, including preliminary purchasing managers' index data for January, with final figures due this week.

Operational Confidence Strengthens

Confidence in businesses' own operations also improved sharply, climbing to +14 from -4 in December. Revenue expectations reached their highest since September 2024, while export outlooks hit a peak not seen since July 2024.

"Overall, there's a sense that, while revenues and general conditions have stabilised, businesses are not yet ready to increase either their capital or labour costs materially," said IoD Chief Economist Anna Leach.

Cautious Hiring and Investment Plans

Despite the optimism, companies plan to reduce staff numbers and curb investment, though less aggressively than previously signalled. This reflects a prudent approach amid ongoing economic uncertainties.

The IoD survey, which began in 2016, had previously hit an all-time low of -74 in September 2025.

Broader Context from ONS Data

Separate data from the Office for National Statistics (ONS) shows trading businesses remain cautious about February 2026, with 20% expecting turnover declinesdown from January but stable year-on-yearand 16% anticipating increases, up slightly.

Over 21% plan to raise prices, citing labour costs (29%), energy prices (20%) and raw materials (20%) as key factors, though worker shortages eased to the lowest since October 2021 at 16% for firms with 10+ employees.

The IoD's January surge stands out as the most significant development today, signalling potential momentum in UK business sentiment as policymakers eye upcoming Bank of England decisions.