Rachel Reeves was dealt a further blow last night as figures showed business optimism hit a two-year low in January.

An index that measures confidence across the British manufacturing industries fell for the fourth consecutive month as businesses continued to reel from the Budget. 

It comes just days after the Bank of England slashed its prediction for UK growth this year by half to just 0.75 per cent. Inflation is forecast to climb to 3.7 per cent this year as energy bills put more of a strain on household budgets.

The index published last night by accountancy firm BDO tumbled to 92.20 – the lowest level since January 2023 – from 93.41 in December. A reading of 100 is average, while a score below 95 is negative.

Confidence among businesses was knocked by Labour's plan to hike National Insurance contributions and impose an inflation-busting minimum wage rise from April, the report said.

BDO partner Kaley Crossthwaite said: 'Our report shows that supporting growth and addressing workforce challenges need to be a key priority for the year ahead.'