UK Economy: What the Latest Shifts Mean for Your Business

Business owners across the UK are navigating an increasingly uncertain economic landscape. With inflation creeping up, growth faltering, and potential interest rate cuts on the horizon, it’s important to understand what these changes mean in practice - and how to prepare your business.

Inflation Rises Again

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. This marks the sharpest increase since January 2024, largely driven by higher motor fuel and food costs.

While the Bank of England expects inflation to ease back towards its 2% target later this year, rising prices are still squeezing households and businesses in the short term.

Growth Falters

The economy contracted by 0.1% in both April and May, with weak retail sales and a slowdown in manufacturing dragging down results. While earlier growth provided optimism, much of this was short-lived and external factors - such as changes in tariffs and the end of the UK’s stamp duty break - played a part.

Although the UK is not officially in recession, growth is fragile and confidence remains subdued across several sectors.

Interest Rate Cuts Ahead?

There may be some relief in sight. With interest rates currently at 4.25%, the Bank of England has hinted that cuts could come as early as August. A reduction would ease borrowing costs on loans, overdrafts, and mortgages, providing welcome support for businesses.

At the same time, employers face rising payroll costs due to increases in both the National Living Wage and employer National Insurance contributions factors which recently led the National Trust to announce significant job cuts.

What This Means for Business Owners

In light of these developments, here are six practical steps to consider:

1. Keep a close eye on costs - Rising prices make it essential to review spending, particularly on fuel, food, and supplier contracts.

2. Plan for potential interest rate cuts - If your business has borrowing, consider reviewing repayment terms or refinancing.

3. Monitor cash flow carefully - With demand under pressure, ensure you have visibility over the next 3–6 months.

4. Take a cautious approach to hiring -Weigh up the impact of higher employment costs before committing to permanent roles.

5. Explore overseas markets - Export opportunities could help offset weaker UK demand.

6. Prepare for tax changes - The Autumn Budget could bring further adjustments, so stay agile.
   

Final Thoughts

While the economic environment remains challenging, opportunities do exist for businesses that plan ahead and stay adaptable. By managing costs, protecting cash flow, and keeping strategies flexible, you’ll be in a stronger position to weather uncertainty.

At SJC, Chartered Accountants, we work closely with businesses to help them plan for the road ahead. Whether you need support with cost management, cash flow forecasting, or strategic planning, our team is here to help.