Q3 2025: Retail & Wholesalers remain among the least confident businesses in the UK.
The latest national Business Confidence Monitor (BCM) shows that business sentiment deteriorated further into negative territory in Q3 2025. This increased pessimism is underpinned by elevated concern over the tax burden, as well as above-average inflation and weak domestic and export sales growth eroding businesses’ profit margins.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 14 July to 24 September 2025.
- The Business Confidence Index for Retail & Wholesale remained unchanged at -11.4 in Q3 2025, significantly below both the UK (-7.3) and historical averages (-0.2).
- With consumer confidence low, domestic sales growth dropped further below the historical average and, while an uplift is expected, the outlook is relatively modest.
- The tax burden continued to be the most prevalent rising challenge, while concern for regulatory requirements reached a six-year high. Customer demand and competition in the marketplace were also commonly reported issues.
- Employment declined in the 12 months to Q3 2025 as businesses continue to grapple with April’s uplift in employers’ National Insurance Contributions, with further job losses predicted.
- Annual input prices, wages and selling price inflation all remained above the historical norm in Q3 2025.
- Businesses plan to grow capital investment and R&D budgets broadly in line with their respective historical averages over the coming year.
Business confidence in the Retail & Wholesale sector
After declining to its lowest level since Q4 2022 in the previous quarter, business sentiment in the Retail & Wholesale sector remained unchanged in Q3 2025, at -11.4. The sector was among the most pessimistic in the UK, only above the Property sector (-23.2) and lagged both the national average (-7.3) and the sector’s historical norm (-0.2).
The pessimism among businesses in the Retail & Wholesale sector likely reflects the challenging operating environment companies are facing. The Q3 2025 Bank of England Agents’ Summary of Business Conditions highlighted that consumer confidence remains weak and heightened consumer caution is causing customers to increasingly shop around and opt for value products to manage their household budgets.
At the same time, the sector’s relative dependence on typically lower-paying jobs left it particularly exposed to April’s increase in the National Living Wage and employers’ National Insurance Contributions. Since then, businesses in the sector have tried to restructure their workforces and have seen employment levels decline in the year to Q3 2025. The concern over the tax burden reached another new survey record high amid increasing uncertainty surrounding the November Budget. The 2025 Employment Rights Bill currently making its way through Parliament is set to provide a considerable shake up to operating practices in the sector, banning zero-hours contracts and strengthening work protections. It may also be contributing to the increase in regulatory concerns reported in the sector.
Domestic sales growth and customer demand
With UK consumer confidence remaining weak, annual domestic sales growth in the Retail & Wholesale sector slowed for the second consecutive quarter in Q3 2025, dropping to 2.3%. This expansion was among the weakest in the UK, lagging the national average increase of 3.0%. Companies anticipate that domestic sales growth will improve over the coming year and outpace the historical norm (2.9%), with a projected increase of 3.1%. However, this outlook is weaker than the previous quarter (3.6%) and is still among the most sluggish expected rises in the UK, lagging the national projection (4.0%).
The subdued domestic sales growth is reflected in the uplift in citations for customer demand in Q3 2025. Of the businesses surveyed in the sector, 51% reported customer demand as a rising challenge, its highest level since Q4 2020. This was a larger proportion than the UK average (39%) and customer demand was more frequently cited by Retail & Wholesale than any other sectors in the economy.
Business challenges
The tax burden remains the most prevalent growing issue for the Retail & Wholesale sector, as businesses continue to grapple with April’s rise in employers’ National Insurance Contributions and grow increasingly concerned over potential tax rises that could be announced in the November Budget. Citations in the sector rose to a new survey historical high of 66% in Q3 2025, nearly four times the sector’s historical average (18%) and above the national average (60%).
Alongside customer demand concerns (51%), regulatory requirements were the next most-widespread rising concern for companies in the Retail & Wholesale sector. The issue was also reported by 51% of businesses in the sector, its highest proportion since Q1 2019 and significantly above the sector’s historical norm of 35%. This uplift in concern is undoubtably linked to the Employment Rights Bill set to be passed into law by the end of 2025. With consumers increasingly shopping around to find the best deals, competition in the marketplace also remains a prevalent challenge and was cited by 43% of businesses as a growing concern, the largest share of any sector and marginally above the historical average (40%).
Labour market
Since April, there has been significant restructuring within the Retail & Wholesale sector due to the rise in costs following the increases in the National Living Wage and employers’ National Insurance Contributions. As a result, employment dropped by 0.7% in the year to Q3 2025. This workforce reduction was the sector’s weakest outturn since Q2 2021 and was in sharp contrast to average growth across the UK economy and the sector historical norm (both 0.9%). Retail & Wholesale companies have the weakest outlook and it is the only sector predicting further job losses in the year ahead, with a projected decline of 0.2% compared to the national growth forecast of 1.2%.
At the same time, the share of businesses reporting the availability of management (16%) and non-management (21%) skills as rising issues climbed above their respective historical norms and the national averages. Alongside this, 25% of Retail & Wholesale companies cited staff turnover as a growing challenge, the joint-highest proportion of any sector and above the historical norm (19%).
Salary inflation in the sector has been on a gradual downward trajectory but remains significantly above the historical average (2.0%), with companies reporting wage growth of 2.8% in the year to Q3 2025. This increase was the slowest rate recorded since Q1 2022 and marginally below the UK-wide average (3.1%). Businesses expect wage inflation to moderate slightly further over the next 12 months, with an anticipated increase of 2.6%, though this is broadly in line with the national average projection (2.7%).
Input prices, selling prices and profits growth
After increasing in the two previous quarters, businesses reported that annual input price inflation remained unchanged, at 3.7% in the year to Q3 2025. The increase is broadly in line with the UK-wide outturn (3.8%), but significantly above the sector’s historical norm (2.6%). Companies anticipate input price growth to slow to 2.5% in the 12 months ahead, marginally below the national average projection of 2.8%.
Companies in the Retail & Wholesale sector increased their selling prices by 2.4% in the year to Q3 2025, down slightly from the previous quarter but marginally ahead of the national average (2.2%). Over the next 12 months, businesses in the sector plan to raise their selling prices by 2.3%, which is still well above the sector historical average (1.6%) and the national average projection of 1.9%.
The Retail & Wholesale sector reported that annual profits growth slowed for the second consecutive quarter in Q3 2025, to 2.3%, matching the historical and national averages. In the year ahead, companies expect profits growth to improve to 3.0%, though this projection is among the weakest in the UK, only stronger than the Property sector and lower than the national average growth expectation of 4.1%.
Investment
Subdued demand and increased labour costs have eroded profit margins, leading to a reduction in the appetite for investment across the Retail & Wholesale sector, with businesses reporting a slowdown in capital investment growth to 0.9% in Q3 2025. This rise was the weakest of any sector and was half the rate recorded across the UK (1.8%). Companies plan to increase capital investment expenditure growth to 1.7% over the coming year, matching the sector’s historical norm and the national average projection.
After easing in the previous quarter, companies reported a marginal uptick in R&D budget growth to 1.4%. While this rise matches the sector’s historical norm (1.4%), it remained below the national average expansion of 1.8%. Businesses plan to grow R&D budgets at a marginally slower pace over the year ahead, again lagging the UK average projection (1.6%), with an expected increase of 1.3%.