Businesses are having to 'run to stand still' due to surging costs under Labour, says a report showing a slump in confidence among bosses.

The figures from the Institute of Directors (IoD) overshadowed an upgrade to UK growth yesterday.

And they will add to pressure on Chancellor John Healey to help businesses in the Budget later this month.

The IoD said its confidence reading fell to minus 54 in September, down from minus 49 in August.

Gloomy sentiment in the private sector threatens to undermine Prime Minister Andy Burnham's hopes of reviving growth and jobs.

Anna Leach, the IoD's chief economist, said: 'Cost pressures remain high, squeezing margins and leaving some firms having to run to stand still. Investment and hiring intentions remain subdued.'

Business has been battered by higher National Insurance rates, a rise in the minimum wage and new workers' rights.

Donald Trump's Iran war has pushed up oil and gas prices, while companies have to pay for net zero policies via levies on energy bills. Now companies hope Healey, who has acknowledged the high cost of doing business, will help them.

'Businesses will be looking to the Budget for delivery: greater certainty in the cost environment and concrete action to improve the economics of investing and hiring, not least by addressing high energy costs,' Leach said.

It came as figures from EY showed corporate borrowing growth will slow this year to 2.1 per cent, from 5.3 per cent in 2025, as firms take a more cautious approach to lending. 

'Geopolitical tensions continue to create uncertainty,' EY's UK and Ireland financial services leader Martina Keane said.

But Britain's businesses have remained resilient. The Office for National Statistics (ONS) yesterday published revised figures showing the economy grew 0.5 per cent in the second quarter – revised up from 0.4 per cent.

Revisions also showed gross domestic product rose 1.2 per cent last year, down from 1.3  per cent.

Valentin Boboc, an economist at the IEA, a free-market think-tank, said that while the ONS upgrade was 'promising', he added: 'The Government should build on this by easing the burden on businesses and workers, with lower and simpler taxes, lighter regulation and cheaper energy.

'Further tax rises would risk undermining the growth the Chancellor needs.'