UK businesses are growing more cautious about the outlook as rising input costs, weak demand and higher borrowing costs put pressure on margins, according to the latest official survey evidence.

New data from the Office for National Statistics’ (ONS) Business Insights and Conditions Survey indicate that while most firms remain operationally resilient, confidence in future turnover and profitability has softened, with a growing share reporting elevated cost pressures and uncertainty over demand.

Cost pressures remain elevated

The ONS survey shows that a significant proportion of UK businesses continue to face higher prices for energy, raw materials and other inputs, even as headline inflation has eased from its peak. Many firms report that supplier prices have stopped rising at the pace seen in 2022–23, but cost levels remain structurally higher, limiting scope to rebuild margins.

Businesses in energy-intensive industries and consumer-facing sectors such as hospitality, retail and manufacturing are among the most exposed, with a notable share citing input costs as a key concern for the months ahead. For many, the combination of sustained cost pressure and weaker demand is eroding profitability.

The survey also suggests that a substantial minority of firms have little flexibility left to pass on further cost increases to customers without risking a hit to volumes. That is pushing management teams to look increasingly to internal efficiencies – including headcount and investment – to protect margins.

Demand and cash flow concerns

Alongside higher costs, a large share of businesses highlight subdued or unpredictable demand as a major challenge. While most report that they are continuing to trade, the balance of firms expecting turnover to increase over the near term has edged lower, particularly in consumer-facing services.

Cash flow positions remain under pressure for many small and medium-sized enterprises (SMEs), which are more exposed to late payments, tighter credit conditions and volatile demand. Some respondents report that higher interest rates have increased debt servicing costs, complicating efforts to manage working capital and finance investment.

This combination of cost and demand uncertainty is feeding through into more cautious planning assumptions, with firms increasingly focused on preserving liquidity and avoiding overextension.

Investment and hiring plans turn more cautious

The ONS data indicate that businesses are tempering investment and hiring plans, even if outright cutbacks remain limited. A number of firms report delaying or scaling back capital spending, particularly on discretionary projects, while prioritising essential maintenance and productivity-enhancing investments.

In the labour market, the survey suggests that recruitment difficulties have eased in some sectors compared with the tight conditions seen in 2022–23. However, many firms remain wary of adding to permanent headcount given uncertainty over future demand and ongoing wage pressures.

Some businesses continue to rely on temporary or flexible staffing models to manage fluctuations in activity, while others say they are looking more closely at automation and technology to contain labour costs over the medium term.

Sectoral differences in resilience

The picture varies significantly across sectors. Consumer-facing services, such as accommodation and food services, retail and parts of leisure, report particular strain from weaker household spending and higher operating costs. For these businesses, profitability remains fragile and any further shock to demand could prompt more aggressive cost-cutting.

By contrast, some professional and business services, as well as parts of information and communication, continue to report relatively stronger conditions, supported by more stable demand and higher value-added activity. Even in these sectors, however, firms are paying close attention to cost control and the trajectory of client spending.

Exporters face an additional layer of uncertainty from global demand conditions and trade frictions, although the survey indicates that most internationally exposed firms have adapted to post-Brexit arrangements and are focusing on incremental efficiency gains rather than wholesale restructuring.

Implications for the UK economic outlook

The latest business insight data suggest that the UK economy is likely to continue growing only modestly in the near term, with limited momentum from private investment and cautious hiring plans. The findings align with other indicators pointing to a more moderate pace of expansion following the initial recovery from recent shocks.

For policymakers, the survey underscores the delicate balance between maintaining progress on inflation and supporting growth. Elevated cost pressures and weak demand leave many businesses vulnerable to additional shocks, even if the risk of widespread corporate distress appears contained for now.

For corporate leaders, the focus is increasingly on resilience: strengthening balance sheets, improving operational efficiency and targeting investment towards productivity and innovation rather than expansion for its own sake. How businesses navigate this period of cost pressure and demand uncertainty will play a central role in shaping the UK’s medium-term growth trajectory.

• Rising input costs and weak demand are eroding margins across key sectors.
• Businesses are delaying discretionary investment and hiring amid uncertainty.
• SMEs remain particularly exposed to cash flow pressures and higher borrowing costs.
• Sectoral performance is diverging, with consumer-facing services under more strain than higher value-added services.