UK companies are entering the second half of the year in their most optimistic mood since the pandemic, according to official survey data that suggest a turning point for the business climate after several years of volatility and cost pressures.

The latest Business Insights and Conditions Survey from the Office for National Statistics (ONS) shows a rising share of firms expecting higher turnover, improved cash flow and better overall performance over the next three months, building on gradual gains seen since the start of the year.

Confidence edges higher across sectors

The ONS survey, which tracks sentiment and reported conditions across thousands of UK firms, indicates that expectations for future turnover have strengthened, with more businesses anticipating growth rather than contraction over the coming quarter.

Services, which dominate the UK economy, continue to lead the improvement, but the survey also points to more positive sentiment in manufacturing and construction, where order books had been under sustained pressure from weak demand and higher borrowing costs.

While the balance of firms reporting rising turnover remains modest, the direction of travel has shifted compared with 2023, when many companies were still focused primarily on cost-cutting and cash preservation.

Investment and hiring plans resume

One of the most notable shifts in the ONS snapshot is an increase in the proportion of businesses planning to expand operations, invest in equipment or technology, and take on additional staff over the coming months.

After several years in which many organisations either froze capital expenditure or limited it to essential replacement, the survey suggests that more firms are now willing to commit to growth-related projects, including digital upgrades and process automation.

Recruitment intentions have also firmed, with a rising share of respondents expecting their workforce size to increase, rather than stay flat or shrink, as they look ahead to anticipated demand.

Cost pressures ease but have not disappeared

Despite the improvement in sentiment, the ONS findings underline that cost pressures remain a central concern for management teams, even as headline inflation has moderated from its peak.

Businesses continue to report elevated input costs, including wages, energy and imported materials, and many note that they have limited scope to pass these increases on to customers without damaging demand.

Higher financing costs, after a rapid rise in interest rates over recent years, are still weighing on highly leveraged firms and those in capital-intensive sectors, making the renewed willingness to invest more striking.

Regional and size differences persist

The survey data highlight uneven conditions across the country and between different types of firms.

Larger businesses generally report stronger balance sheets and greater confidence in their ability to absorb shocks, whereas smaller enterprises remain more exposed to swings in demand and rising costs.

Some regions with a heavier reliance on consumer-facing services report a more marked pickup in expectations, while export-oriented manufacturers continue to flag challenges linked to weaker external demand and persistent trade frictions.

Cautious optimism after a volatile period

Economists say the trajectory of the ONS survey is consistent with a gradual stabilisation of the UK economy after the energy price shock and inflation surge, though they caution that the upswing in sentiment is not yet matched by a strong rebound in output.

For many firms, the priority remains rebuilding margins and balance sheets rather than pursuing aggressive expansion, but the shift towards higher expected turnover and renewed hiring points to a more supportive backdrop for investment than at any point since the pandemic.

Policymakers and investors will be watching subsequent ONS releases closely to assess whether the improvement in business confidence is sustained and whether it translates into stronger productivity, higher levels of capital spending and a more durable recovery in growth.

• More firms now expect turnover to rise than to fall over the next three months.
• Investment and hiring intentions have strengthened after a prolonged period of caution.
• Cost pressures and financing costs remain key headwinds, particularly for smaller firms.
• Regional and sectoral differences persist, with export-exposed manufacturers still under strain.