Business owners across the UK are facing an increasingly complex economic picture. Inflation has risen again, and the latest figures show the economy has contracted for two months in a row.
So, what’s really going on, and what should you be doing as a business owner?
Inflation creeps back up
The latest data from the Office for National Statistics shows inflation rose to 3.6% in the year to June, up from 3.4% in May. That’s the sharpest increase since January 2024 and was driven mainly by higher prices at the pump and in the supermarket. Food price inflation has now increased for the third consecutive month.
The Bank of England expects inflation to peak around 3.7% over the summer before easing back towards its 2% target by the end of the year. But for now, the impact on households, and for businesses is real.
A slowdown in growth
The economy contracted by 0.1% in May, following a similar 0.1% fall in April. The figures were weaker than expected and largely attributed to a decline in manufacturing output and sluggish retail performance.
While we saw a period of stronger growth earlier in the year, that now appears to have been short-lived – bolstered by changes to US trade tariffs and the conclusion of the UK stamp duty break.
We’re not yet technically in a recession yet, but there’s no escaping the fact that growth is stalling. Our latest business survey revealed that confidence in some sectors is fragile, and the outlook for the coming months remains uncertain, 30% of respondents scored their confidence at 50 or below, while 43% scored theirs at 70 or more – highlighting a clear divide in business sentiment.
Interest rates: relief in sight?
There may be some relief on the horizon. Bank of England Governor Andrew Bailey has suggested that interest rates are now on a downward path. Many economists expect a rate cut as early as the next review in August.
With base rates currently at 4.25%, a reduction would lower borrowing costs and may ease pressure on loans, overdrafts and mortgages. The Bank is treading carefully due to elevated inflation, but has indicated that further signs of a cooling labour market will strengthen the case for cuts.
Those signs are already emerging. Job vacancies are now at their lowest level since 2021, and more people are re-entering the workforce. Even so, many employers are still under pressure – with the recent rise in employer National Insurance and National Living Wage making payroll costs increasingly difficult to absorb. In our July 2025 survey we asked business owner how they are mitigating the effects of the rise in Employers NI, 7% said they’re lowering employee salary increases, 20% said they increasing their prices to customers and 16% said they’re doing a mix of both – it’s clear that businesses are feeling the effects.
The National Trust, for example, has pointed to rising employment costs as one of the reasons behind its plan to cut 550 roles from its workforce.
What this means for your business
With inflation rising and growth slowing, this is not the time to be passive. Here are some practical steps to consider:
1. Reassess your cost base
Review the impact of price increases – particularly in fuel, food, and other cost-sensitive categories. Where possible, secure rates early by renegotiating supplier contracts or fixing prices.
2. Plan for potential rate cuts
If your business carries debt or uses credit facilities, keep an eye on interest rates. A cut could lower your repayment costs. Consider whether refinancing or revisiting loan terms could put you in a stronger position.
3. Focus on cashflow visibility
Slower growth can lead to patchier revenues. Make sure your cashflow forecasts cover at least the next 3-6 months, and take action early if you foresee pressure on working capital.
4. Take a measured approach to hiring
With employer NICs and wage pressures rising, recruitment should be carefully considered. If demand is uncertain, flexible or temporary arrangements might help manage risk.
5. Explore international growth
Some businesses are maintaining momentum by tapping into overseas markets. If you’ve got a product or service that can travel, now might be the time to consider export options.
6. Be prepared for tax changes
The Autumn Budget may bring further adjustments to business taxation. We’ll be watching this closely and advising clients as soon as details are available.
Final thoughts
The economic environment may be shifting – but it’s far from static. Staying on the front foot, managing your numbers tightly and keeping your options open will be key to weathering any bumps in the road.
You can download the full report from our July 2025 business survey here. We ask questions around confidence, cashflow, recruitment, profit, turnover, opportunities, challenges and more, in order to build a picture of the current landscape business owners are operating within.
If you need support in reviewing your financial plans, cost structure or employment strategy, our team is here to help.
