Business costs in the UK are rising at the fastest rate in four years, according to a survey by Deloitte. A net balance of 84% of chief financial officers (CFOs) expect operating costs to increase over the next 12 months. Concerns about the UK’s productivity and competitiveness have emerged as the top risks for CFOs, alongside geopolitical issues. Ian Stewart, chief economist at Deloitte, said: “Domestic challenges have moved centre stage.” Separate analysis from BDO shows that companies are delaying spending and hiring decisions, with employment growth at a 13-year low, as they await clarity from the Government ahead of the Budget. Scott Knight, head of growth at BDO, said that the private sector needed “clarity from the top before they can take any meaningful investment risks.”

Analysts warn that the Office for Budget Responsibility (OBR) could be deemed “unreasonably pessimistic” if it downgrades productivity growth trends by more than 0.1 percentage point. Modelling by Pantheon Macroeconomics suggests that productivity levels in the UK have been better than OBR forecasts on some measures. The study shows that growth data revisions by the Office for National Statistics (ONS) show higher official output-per-hour levels than expected. Analysis of ONS and HMRC payroll data shows that productivity growth in Q2 was higher than the OBR forecast. The Pantheon Macroeconomics report also raises questions over productivity growth calculations’ dependence on the Labour Force Survey (LFS). Year-on-year productivity growth based on HMRC data hit 2.1% in Q2, with this higher than when data from the LFS was used.

Food prices in the UK could rise further if Chancellor Rachel Reeves proceeds with plans to raise business rates on large retailers, the British Retail Consortium (BRC) has warned. The proposed “surtax” on properties valued above £500,000, due in April, aims to fund tax cuts for smaller firms but could increase big retailers’ bills by up to 20%. The BRC says this may keep food inflation above 5% through most of 2026. Retail leaders argue that businesses already face rising costs from higher wages and taxes, adding that further hikes could entrench inflation, deter investment, and reduce hiring.

Chancellor Rachel Reeves must avoid “directionless tinkering” in her upcoming Budget, according to the Institute for Fiscal Studies (IFS). The IFS warns that some proposed tax increases could be “especially economically harmful” and has urged Ms Reeves to resist “simply hiking rates” without making other changes to an “unfair” and “inefficient” tax system. The IFS report warns against a permanent wealth tax, citing global failures, and suggests a one-off tax could be more effective as the wealthy would struggle to evade it. The report also proposes alternative revenue sources, such as increasing inheritance tax and reforming pension tax relief. Meanwhile, the IFS estimates that extending the freeze on personal tax thresholds could generate £10.4bn annually from 2029/30. However, this move could pull more workers into higher tax bands due to fiscal drag. This, the IFS warns, would be a breach of the manifesto pledge not to raise taxes on working people.

The Treasury is exploring tax incentives to enhance productivity amid expected downgrades in forecasts from the Office for Budget Responsibility (OBR). Officials are considering reducing patent costs and expanding the Enterprise Management Incentive scheme for start-ups. Modelling suggests that doing so would cost just under £1bn but offer a return of between £6bn and £10bn in productivity improvements by the end of the parliament. Lib Dem MP Chris Coghlan said such measures “could reduce the Chancellor’s anticipated £20bn black hole from the OBR’s productivity downgrades by 20%.” He added that this would be a “win-win – increasing the value of UK start-ups producing cutting-edge science and incentivising British companies to rapidly bring in innovation to boost productivity.”

Chancellor Rachel Reeves is preparing to raise taxes to address a £20bn-30bn gap in public finances, with it suggested that the better off will be forced to “contribute more.” Treasury sources indicate that spending cuts are off the table, leaving tax increases as the primary solution. Ms Reeves, the insiders say, will target higher-income individuals while avoiding tax hikes on working families. A Treasury insider said the Chancellor “will be fair when asking those to contribute more to rebuild our public services.” However, economists warn that proposed wealth taxes may not generate sufficient revenue, potentially forcing Ms Reeves to break Labour’s manifesto commitment that there will not be increases in income tax, National Insurance or VAT.

Andrew Bailey, the governor of the Bank of England, has said that AI will not lead to significant job losses, arguing that there is a need for training and retraining to prepare the workforce for the technology. Despite warnings from tech leaders about potential job eliminations, Mr Bailey said: “AI is the most likely candidate for the next big cycle of innovation.”

Vacancies in London’s financial services increased by 2% in the last quarter, according to a report by Morgan McKinley, with demand for senior roles in audit, tax, and AI leading the way. Over the past year, vacancies in the sector have risen by 9%.

Hays, the largest recruiter in the UK, says that while the hiring market “remains challenging,” it has not worsened in recent months and finance chief James Hilton said: “It’s still tough, but maybe not quite as bad as it was.” Hays anticipates continued challenges in the hiring landscape, emphasising the need for stability in business policies.

Matthew Lynn in the Sunday Telegraph says the shadow banking sector is showing signs of stress, raising concerns about a potential financial crisis. The Financial Conduct Authority has urged vigilance as investors sell shares in major money managers, fearing their exposure to private credit. Mr Lynn notes that the $3trn industry, which has grown rapidly, often lacks transparency and regulation. Many loans, he says, are of poor quality, with significant risks tied to businesses with weak balance sheets. As the market reaches record highs, experts warn that hidden losses in shadow banking could lead to a severe downturn. Mr Lynn argues that “no one who is familiar with the long history of asset bubbles should be in the least surprised if the market starts to collapse, leaving a trail of wreckage in its wake.”

New research from Google reveals that 59% of UK SME owners have paused innovative ideas due to time constraints. Analysis suggests that the stalled concepts could potentially boost revenues by up to 30% and Google estimates that AI tools could unlock a £198bn productivity increase in the SME sector. Despite 86% saying they are familiar with AI, only 31% of SMEs currently use AI tools, highlighting a significant gap in adoption.

Ahead of next month’s Budget, Treasury sources have suggested that Chancellor Rachel Reeves will ask wealthier households to “contribute more” as she looks to plug a gap in the public finances. This could mean new or higher taxes on property, inheritance and investment. A Treasury insider insisted that the Chancellor “will be fair when asking those to contribute more to rebuild our public services,” while another said that Ms Reeves was prepared to take “tough decisions” to protect the “stability” of the public finances. Saltus Wealth Index analysis shows that almost 80% of high-net-worth individuals expect Labour to raise taxes within the next year, with capital gains, inheritance and property taxes deemed the most likely targets.

Rachel Reeves has urged business leaders to “talk up” the economy ahead of the Budget, with firms warned that a downturn could drive an increase in support for Reform UK. While Reform has been attempting to secure support from businesses by offering low tax policies, Labour says a Government under Nigel Farage could hurt economic stability by undermining the Bank of England and severing ties with the EU. One business leader revealed: “We’ve been told that if you want to talk down the economy it will only help Reform.”

Research shows that Generation Z workers want their leaders to care about mental health, sustainability, diversity, and the cost of living. The analysis also suggests that they are less patient than previous generations when it comes to waiting for promotions and rewards. A survey by HiBob shows that 70% of managers struggle to meet Gen Z’s demands, citing unrealistic expectations. Ann Francke, CEO of the Chartered Management Institute, noted the pandemic’s impact on these workers, saying it “affected their mental health and wellbeing, caused anxiety and also impacted social skills.” In an effort to address these issues, companies are exploring initiatives like “reverse mentoring”, pairing younger employees with senior leaders.