New research conducted by Grant Thornton UK LLP has revealed that UK businesses are bracing for significant challenges as they head into 2025, particularly in light of increased employer National Insurance Contributions and the National Minimum Wage, which were highlighted in the recent Autumn Budget. The findings indicate a cautious outlook among businesses, leading many to explore cost-saving measures including hiring freezes and potential job cuts.
The latest Business Outlook Tracker, which involved a survey of 800 UK businesses during December 2024, shows that over half (52%) of the respondents anticipate the need to reduce hiring or cut staff altogether. Many are also prepared to offer reduced or no pay increases and bonuses to employees as they grapple with rising employment costs. Additionally, 66% of businesses are evaluating their employee benefits, with 16% planning to decrease their investment in employee rewards and benefits within the next six months.
Highlighting the impact of these changes, more than half (54%) of the surveyed businesses expect they may need to pass on increased employment costs to customers through price hikes. The research indicated that medium-sized enterprises are bearing the brunt of these economic shifts, with 55% planning to cut jobs and similarly 55% considering hiring freezes, as opposed to 42% and 43% of larger businesses. The pressure on medium-sized firms is further exemplified by their declining confidence in funding, which stands at -9 percentage points compared to the beginning of 2024.
The survey results signal that nearly two-thirds (65%) of medium-sized businesses foresee a need to seek additional funding in the coming year, with about 23% of those stating it will be specifically to cover escalating employment costs. Despite these actions to mitigate costs, confidence in profit growth remains subdued within this segment, with 43% predicting a decline in profit levels over the next six months.
This contrasts sharply with the sentiment expressed by large corporates, where only 26% expect profit declines, driven by a more optimistic outlook on the UK economy. In fact, 92% of large corporates remain optimistic, compared to 72% of medium-sized businesses.
Matt Buckingham, Midlands Practice Leader at Grant Thornton UK LLP, commented on the survey's findings, noting the essential role of attracting and retaining talent in driving growth. Speaking to the East Midlands Business Link Magazine, he mentioned, “The pressures employers are feeling around cost inflation and tax changes need to be managed carefully. When reviewing employee benefits packages, transparency and clear communication around any changes is essential.” He stressed that understanding the ramifications of changes on employees and ensuring maximum return on employee benefit spend can help maintain competitive advantages.
Adding further insight, Schellion Horn, Head of Economic Consulting at Grant Thornton UK LLP, reflected on the implications of the Autumn Budget, indicating that many businesses, particularly smaller to medium-sized ones, are encountering ongoing operational pressures. “After the last few years of having to manage costs due to high inflation, wage growth and rising interest rates… the market is now faced with further cost increases and the likelihood of interest rates staying higher for longer,” Horn stated.
The findings suggest a complex landscape ahead as UK businesses navigate these financial pressures. Many firms are likely to seek new funding opportunities, and awareness of available grants and investments, particularly from local councils, may play a crucial role in offsetting some of these ongoing cost challenges. As the year unfolds, the focus for businesses of all sizes will continue to centre around managing costs and improving efficiency in the face of an unpredictable economic environment.
Source: Noah Wire Services