Economic uncertainty has cemented its position as the dominant concern for UK businesses, with 34% of trading firms naming it as the main factor affecting their turnover in early May, according to the latest Business Insights and Conditions Survey from the Office for National Statistics (ONS).

The figure is broadly unchanged from previous waves of the survey, suggesting that, despite some improvement in headline economic indicators, corporate confidence remains fragile. The findings come as policymakers and investors debate the timing of the Bank of England’s first interest rate cut and businesses continue to navigate lingering cost pressures, weak demand in some sectors and a murky global outlook.

Uncertainty eclipses other business pressures

The ONS survey, which canvasses thousands of businesses across sectors, shows economic uncertainty outstripping other commonly cited challenges, such as input cost inflation, labour shortages and weak demand. While the exact ranking of secondary concerns varies by industry, the persistence of uncertainty at the top of the list points to a structural caution among UK firms.

For many businesses, uncertainty encompasses several overlapping worries: the trajectory of interest rates, future tax and regulatory policy, the resilience of consumer spending, and the impact of geopolitical tensions on trade flows and energy prices. This broad-based anxiety is translating into more conservative decision-making on hiring, investment and pricing.

Service-sector companies, particularly in professional, scientific and technical activities, report elevated concern about the medium-term demand outlook and client willingness to commit to large projects. Manufacturers, by contrast, remain more acutely exposed to fluctuations in global orders, shipping costs and the terms of trade with key markets.

Investment and hiring plans remain cautious

The survey evidence points to a corporate sector that is operating, but reluctant to take on major new risks. While most UK businesses report that they are currently trading, many are deferring or scaling back capital expenditure and expansion plans until there is greater clarity on the economic and policy environment.

Several firms indicate that they are focusing on efficiency gains and incremental improvements rather than large-scale investment in new capacity. Some are using improved cash flow, helped by earlier easing in input costs, to strengthen balance sheets rather than to increase headcount or pursue acquisitions.

Recruitment plans echo this caution. Although labour market pressures have eased from their post-pandemic peak, many companies remain wary of adding permanent staff. Instead, they are relying more heavily on temporary contracts, flexible hours or outsourcing to manage fluctuating demand.

Sectoral divergence in business sentiment

The headline picture of unease masks sharp differences between industries. Consumer-facing sectors such as retail, hospitality and leisure remain highly sensitive to any weakening in household spending power and confidence. In these sectors, even modest shifts in energy bills, mortgage costs or tax policy can quickly translate into changes in footfall and discretionary spending.

By contrast, parts of the technology, life sciences and advanced manufacturing ecosystems report more resilient pipelines of work, helped by targeted government support for innovation, export opportunities and long-term structural demand. However, even among these relatively upbeat sectors, survey responses suggest that uncertainty over future funding conditions and regulation is constraining more ambitious bets.

Smaller businesses tend to report the greatest vulnerability to uncertainty, citing limited financial buffers, less bargaining power with suppliers and customers, and tighter access to credit. Larger corporates are generally better able to hedge currency and interest rate risk, and to diversify across markets, though they too report delaying some large projects until the outlook becomes clearer.

Implications for growth, productivity and policy

The persistence of uncertainty as the top concern has important implications for the UK’s growth and productivity prospects. If firms remain hesitant to invest in new technology, skills and capacity, the economy risks settling into a pattern of modest growth underpinned by cost-cutting rather than expansion.

Business groups have argued that more predictable, long-term policy frameworks on tax, regulation, infrastructure and net zero are needed to unlock corporate investment. They also highlight the importance of stable and transparent monetary policy communication to help firms plan around interest rate expectations.

For policymakers, the ONS findings will be read alongside other indicators such as business investment data, credit conditions surveys and purchasing managers’ indices to gauge how sentiment is likely to translate into real economic activity. A prolonged period in which uncertainty remains the most-cited challenge would raise concerns about a persistent investment gap and slower productivity growth.

Companies focus on resilience and flexibility

In response to the unsettled environment, many firms are doubling down on resilience and flexibility. Moves include diversifying supply chains, renegotiating contracts, building cash buffers and investing in digital tools that allow them to adjust operations at short notice.

• Supply chain diversification to reduce exposure to single markets or routes
• Greater use of data and analytics to monitor demand in real time
• Flexible working arrangements and variable staffing models
• Selective investment in automation to manage labour and cost risks

These strategies may help companies weather volatility, but they are not a substitute for the kind of large-scale, long-horizon investment that drives sustained gains in productivity and living standards. Whether UK businesses shift from defensive to expansionary strategies will depend on how quickly the cloud of uncertainty begins to lift.

For now, the latest ONS survey underlines that, beneath relatively stable macroeconomic data, corporate decision-makers remain on edge. Until businesses feel more confident about the durability and direction of the recovery, the UK’s growth trajectory is likely to remain constrained by a pervasive reluctance to take long-term risks.