Sentiment and concerns highlighted by ICAEW’s latest Business Confidence Monitor (BCM) results continued to dominate ICAEW member discussions this month.

Policy announcements made in the Autumn Budget are set to come into force in a matter of weeks, with the additional cost of employment due to a rise in Employers’ National Insurance and the National Minimum Wage very much on the horizon. 

Geopolitical events, primarily the inauguration of a new president in the US and the prospect of a tariff war, further sparked member concerns. However, despite both ongoing and newly emerging challenges, ICAEW members remain resilient and ready to respond.

Economic backdrop

The challenging international backdrop was noted by members working in manufacturing and academia. 

“Demand across the board is down as the UK is too expensive,” was the view of a traditional manufacturing business in the South West. With cheaper imports readily available from East Asia, it is becoming increasingly difficult to compete in a price-sensitive market. While consumers may prefer a product sourced locally and with sustainable credentials, it appears purchasing decisions regularly come down to cost. 

Another member in the sector echoed similar feelings, with one distinct difference: “The sector struggles as it’s not unique; the only competitive advantage in exporting is having a Royal Warrant.”

The university sector, meanwhile, is reacting to a “massive dependence on China, which is now falling apart,” in the words of one member. This presents both a risk of losing academic talent through redundancies but also an opportunity to reimagine the sector. 

The wider view among members is of a worrying international landscape. The potential for US tariffs has sparked member concerns about the world becoming an increasingly closed trade environment and “more unpredictable with little diplomacy.” Another member commented: “There is increasing uncertainty regarding US government contracts due to political and protectionist trends.” 

Employment

The increased cost of employment continues to concern members, especially those engaged on the frontline, servicing businesses’ recruitment needs.

“We are on a corridor of uncertainty. Immediately after the Autumn Budget, clients began to pull their recruitment plans,” was the experience of a member working in the recruitment sector in the North East. He cautioned that recruitment is also dropping off due to concerns over demand. With confidence in the BCM closely linked to domestic sales, any fear of a reduction in consumer spending may manifest in a drop in appetite to expand headcount. 

On the topic of sales, a different view came from a member working in FMCG (Fast-Moving Consumer Goods): “We’re cautiously optimistic as household finances are in a better state than they have been for three years.”

Much depends on product and market specifics, with higher value and discretionary purchase products coming under more pressure. 

“Hiring across multiple sectors is frozen with people laid off and pay rises restricted to inflationary increases. The extra cost of employment is hitting the region hard,” was the sentiment expressed by a portfolio FD based in Wales. 

Another member reported that “the main topic of discussion is pay rises.” Businesses are exploring other ways to incentivise and retain staff, including bonuses linked to growth, mental health support and additional holiday. 

According to a poll conducted on a recent ICAEW webinar on the economic outlook in retail for 2025, 47% of attendees said they were looking to raise prices in response to increased employment costs. Whether this is possible without a reduction in volumes is debatable, but the possibility of further inflationary pressures makes the trajectory of interest rate cuts more uncertain. 

Employment costs, and the Employment Rights Bill specifically, has been raised as an issue by small business: “Although we’re scaling fast, as a start-up business we don’t have processes in place,” one member remarked. 

Other members report exploring outsourcing and offshoring options. Practice firms have seen an increase in demand and challenges in servicing client needs due to the availability of skilled labour. “Outsourcing and offshoring in audit is likely to grow as firms unable to source staff in the UK are having to turn work away due to staff shortages.”

Business too, is exploring these alternative options. A member in East Anglia commented: “Recruitment challenges are ongoing. A shortage of qualified accountants is leading to an increase in outsourcing and offshoring.”

Growth remains critical, but also difficult to achieve given economic conditions. ICAEW’s scale-up series of webinars provides insight and advice from experts on areas that smaller businesses need to prioritise. They include financial planning and raising finance, building a positive culture, and team and networking/communication skills. 

ICAEW continues to communicate member views in meetings with government. More recently, we have responded to the Department for Business and Trade’s Industrial Strategy Consultation and Trade Strategy Review Consultation. As always, we are extremely grateful to our volunteer network of committees, communities and ICAEW regional teams who provide feedback and gather insights.