UK companies prioritise business cost reduction amid economic uncertainty

UK companies’ focus on business cost reduction has risen to a new post-Covid 19 pandemic high in the second quarter of 2025, due to an increase in economic uncertainty, according to a survey of business leaders by Deloitte 1.

Respondents were given a list of eight defensive strategies and asked to rate each in terms of “strong priority”, “somewhat of a priority” and “not a priority” for their business over the next 12 months.

Reducing costs was rated a strong priority by 69% of CFOs questioned, up from 63% in the first quarter of 2025 and 51% a year earlier.

In the same survey, 85% said that the level of economic uncertainty facing their businesses was Above Normal/High, up from 77% in the first three months of 2025.

Concerns about the economy’s state and future are widespread. Some indicators show that business confidence remains weak, at best, and sentiment is falling.

For instance, the British Chambers of Commerce (BCC) reported that confidence among firms remained weak in Q2’25, with 49% expecting their turnover to increase over the next 12 months, up only slightly from 48% in Q1 ².

The Institute of Directors’ Economic Confidence Index, which tracks business leader optimism about the UK economy, fell to -53 in June, down from -35 in May ³.

Both studies reported that the implementation of tax measures such as the hike in employer National Insurance contributions and increases in the National Living Wage, have dampened optimism.

Small businesses feeling gloomier

Small businesses are feeling gloomier about the prospects for their companies than in previous years.

• A survey by The Federation of Small Businesses (FSB) found that more small businesses are predicting they will shrink or close in the coming year ⁴.
• For the first time in the FSB’s Small Business Index history, 27% of small firms anticipate contraction, sale, or closure - surpassing the 25% aiming for growth.
• The top concerns for small business owners are the fragile state of the economy, high tax burdens, and rising labour costs.

UK economy loses momentum

These concerns have recently materialised with gross domestic product (GDP) declining by 0.1% in May, following a contraction of 0.3% in April ⁵.

UK key macroeconomic indicators

Adding to the pressures faced by businesses, inflation is creeping up. Prices rose by more than expected in the year to June, pushing inflation to 3.6%, the highest it has been since January 2024 ⁶.

The average forecast among economists surveyed by FactSet was for inflation to be 3.5% ⁷.

With inflation remaining above the Bank of England’s target of 2%, the Bank is likely to keep interest rates unchanged at 4% at its next Monetary Policy Committeee ⁸.

This increasingly complex economic landscape is proving too much for many companies.

Businesses in the hospitality industry, for instance, have been hit the hardest with 84,000 jobs cut since the Budget ⁹.

Although insolvencies declined in 2024 by 5% compared to an all-time high reached in 2023, bankruptcies remain high. In the first six months of 2025, the number of companies declared insolvent was slightly higher than in the same period in 2023 and 2024 ¹⁰.

Company insolvencies in the UK

Businesses face rising energy costs despite falls in wholesale prices

Businesses are facing rising energy costs despite falls in wholesale prices over the coming years, according to energy industry consultants Cornwall Insight ¹¹.

This is due to significant increases in non-commodity costs, also known as third party charges, which include transmission and distribution costs and charges associated with government schemes and levies.

Third party charges currently make up a significant amount of the total bill. 

While wholesale prices may fall by 10% between 2025-26 and 2027-28, and some non-commodity costs may also decrease, these reductions are offset by increases in other schemes such as Contracts for Difference (CfD) and the Capacity Market.

Overall, energy bills for businesses are likely to remain above the pre-energy crisis levels for the foreseeable future.

Breakdown of small industrial customer bills, nominal exc. metering according to Cornwall Insight (£/MWh)

For a more detailed coverage of third-party charges, visit Energy pricing trends - what’s driving the changes in third party costs?.

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Explore our business energy saving page for practical tools, sector-specific tips, and expert advice to help your business reduce energy use and manage costs more effectively.

In this article

• Small businesses feeling gloomier
• UK economy loses momentum
• Businesses face rising energy costs despite falls in wholesale prices

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