Despite the negative economic headwinds this year, members consistently demonstrated resilience while calling for stability, clarity and a long-term strategy to support growth.

ICAEW’s UK Business Confidence Monitor (BCM) tracked confidence falling in successive quarters. Member conversations provided detailed, real-time evidence of pressures on trading, hiring, investment and competitiveness. These insights have informed ICAEW’s discussions with policymakers and the support delivered to members throughout the year.

Q1 – a tough economic backdrop and rising employment costs

The year began with confidence already in a weakened position because of the Budget and imminent introduction of higher employers’ national insurance and national minimum wage rates.

Many businesses, especially in manufacturing, retail, hospitality, construction and social care, faced material increases in employment costs, and charities faced the same challenges. Several reported reviewing their entire operating model, including considering delaying pay awards, pausing recruitment, adjusting shift patterns or passing on costs to customers.

“Prices will ultimately have to go up and customers will have to bear it,” said one member working in the retail sector in the Midlands.

Global uncertainty compounded domestic stresses. Members in manufacturing highlighted increased price sensitivity and rising competition from cheaper imports originating from Asia. Many felt that global market conditions were becoming more protectionist and volatile.

Recruitment challenges persisted from 2024. Practices continued to struggle with a shortage of skills, leading to further increases in offshoring and outsourcing.

Businesses also expressed concerns over the Employment Rights Bill (ERB), predicting that compliance requirements would constrain hiring flexibility.

Q2 – tariffs, stalled investment and a continued call for stability

By spring, tariff concerns intensified. Across energy, advertising, retail and manufacturing, members reported higher input costs, supply chain disruption and greater uncertainty around pricing. Some took a wait-and-see approach, with investment decisions increasingly delayed.

“Tariffs already add cost – combining this with continuing uncertainty is a chilling mix,” said one member in manufacturing. While another in the renewables sector confirmed that “…investment decisions are stuck on board agendas”.

Several UK exporters reported exploring alternative markets or reconfiguring supply chains following US tariffs. Practice firms advising SMEs noted that smaller organisations lacked in-house resources and systems required to navigate rapidly shifting international requirements.

Employment costs remained a dominant theme. Rising wage levels, combined with expectations of further increases, led some businesses to freeze recruitment, and explore automation and offshoring. A widening gap appeared between larger businesses able to adapt quickly and smaller firms facing greater administrative friction.

Discussions over technology adoption appeared to accelerate throughout the quarter. Members increasingly viewed AI as a beneficial tool to enhance efficiency and productivity rather than workforce reduction.

Q3 – confidence weakens further amid geopolitical tensions

Confidence declined again in the BCM Q2 results, falling for the fourth consecutive quarter. Members across manufacturing, fast-moving consumer goods, hospitality, property, media and creative industries consistently reported softer demand, more cautious consumers and greater scrutiny of spending decisions.

“The consumer has just stopped buying – discretionary spending has taken another nosedive,” was the experience of a member working in manufacturing in the North West.

Tariffs continued to feature heavily in member discussions. Exporters supplying the US re-evaluated product lines, while UK retailers reliant on Asian-sourced goods considered whether to relocate or diversify supply chains. Reduced container volumes were reported reflecting lower confidence.

Access to finance discussions highlighted a mismatch between supply and demand. Banks were reportedly willing to lend, but many businesses lacked the confidence to deploy capital.

In technology and professional services, members warned that entrepreneurs could increasingly choose to locate operations overseas if UK conditions did not become more conducive to investment.

Appetite for digitalisation and automation continued to gather momentum. However, members expressed concern that the loss of junior roles, replaced by automation, could create future challenges negatively impacting the pipeline of future skills.

Q4 – a difficult trading period and intensified policy concerns

Autumn brought ongoing trading pressures and heightened debate and uncertainty over the Budget. While luxury businesses performed relatively well, high street retail, hospitality and consumer-facing sectors reported weaker volumes and increased cost sensitivity.

“Nothing good will come from this Budget,” was a view from the farming sector in the East Midlands.

AI-driven changes in search behaviour began to impact online retail and media organisations with some businesses expecting further disruption to digital marketing models in 2026.

As the Budget grew closer, anxiety rose. Members expressed concern about the cumulative effect of higher taxes, complex regulation, wage pressures and uncertainty around future policy direction. Several sectors highlighted the risk that businesses could delay or cancel investment unless clearer, longer-term policy signals emerged.

December – inflationary pressures, regulatory concerns and caution

In the final month of the year members cited inflationary pressures and stretched cash flow.

“We’re having to work so hard just to stand still and expect 2026 to be challenging,” was the view from a hospitality business based in London.

Feedback on the Budget remained largely critical, due to a lack of growth measures, insufficient policy clarity and concern over potential future tax rises. The ERB drew strong reactions, particularly among SMEs anticipating tighter rules, reduced flexibility and increased compliance costs.

Looking ahead to 2026

Members enter 2026 with cautious realism. Many expect the first quarter to remain challenging, shaped by ongoing cost pressures, subdued consumer demand and heightened geopolitical uncertainty.

Across the board, members hope for stability, clarity and long-term strategic direction from the government to unlock growth. Businesses stressed the need for policies that support competitiveness, investment in skills and simpler taxation.

Despite the challenges, there is optimism that sectors embracing technology and open to exploring new markets can find opportunities for growth.