UK finance leaders are worried about the UK economy, with specific concerns centered on rising costs, low productivity, weak competitiveness, and an uncertain fiscal policy outlook.
Recent surveys highlight a generally defensive stance and a focus on managing immediate challenges:
- Rising Costs and Margin Pressure: A significant majority (net 84%) of finance leaders expect operating costs to rise over the next 12 months, the highest level in more than four years. Nearly half (47%) anticipate a fall in operating margins.
- Domestic Concerns: Worries about UK productivity and competitiveness have risen to become a top risk, now ranking alongside global geopolitical concerns. Domestic challenges, including the impact of tax policies on hiring, have moved “centre stage”.
- Defensive Strategy: In response to these pressures, finance chiefs are prioritising defensive strategies, with cost reduction and cash control as their top two priorities. They are less focused on expansionary plans like capital expenditure or acquisitions.
- Policy Uncertainty: The prospect of further tax rises, as indicated by recent government messaging ahead of the November 2025 Budget, is contributing to business caution and is expected to result in downgraded growth and inflation forecasts.
While some business optimism exists for their own firm’s prospects in the very short term, the overall sentiment regarding the broader UK economy remains muted due to persistent headwinds.
Are smaller finance companies concerned?
Key points of concern include:
- Economic Uncertainty: Economic uncertainty has been the most reported challenge for UK businesses since October 2022, impacting turnover and future planning.
- Access to Finance: There are significant concerns regarding small businesses’ ability to obtain external finance. The success rate of loan applications has fallen, and many businesses that are open to considering finance believe it would be difficult to secure.
- Cost of Credit: Elevated interest rates have led to a higher cost of borrowing, which is squeezing profit margins and leading some small businesses to hold off on investment.
- Flat Growth and Investment: GDP growth has been described as “flat” or “stuck”, which is not enough to help small firms cope with increased costs. This has led to low business investment, a key factor in the UK’s productivity gap compared to other G7 nations.
- Operational Costs: Beyond finance, businesses are also dealing with other significant costs, including labour and energy, which further impact their viability and growth prospects.
- Pessimistic Outlook: Surveys from mid-2025 indicated that for the first time in the history of the Federation of Small Businesses’ Small Business Index, more small firms expected to shrink or close than to expand.
- Impact on Lending: The challenging economic environment makes finance providers more cautious about a business’s ability to repay, further restricting the supply of credit.
Alex Collins from ICAEW is holding a seminar at financeSHOWCASE Edgbaston next week – providing an authoritative voice on the state of the UK economy and opportunities for growth. He’ll also discuss what the business leaders across the midlands think.
Register for your FREE tickets here: https://financeshowcase.co.uk/events/birmingham-autumn/
