Small business optimism in the UK is declining due to persistent inflation, labour shortages, and rising borrowing costs. The National Federation of Independent Businesses (NFIB) reported a two-point drop in the small business optimism index to 98.8, with the uncertainty index reaching its highest level in over 50 years. NFIB chief economist Bill Dunkelberg commented: “Owners are managing rising inflationary pressures and slower sales expectations.” With inflation holding at 3.8% and many SMEs struggling with cash flow, the outlook remains bleak as political uncertainty adds to their challenges.

Sam Woods, the head of the Prudential Regulation Authority (PRA), has warned against loosening capital rules for banks. He stated that removing top-tier sovereign bonds from capital calculations would significantly increase bank leverage, posing serious risks. Woods remarked: “It would allow a very large increase in bank leverage given the size of banks’ sovereign holdings.” He referenced the 2023 collapse of Silicon Valley Bank, highlighting the dangers of interest rate risk. UK Finance proposed changes to the Leverage Ratio (LR) framework earlier this year and US Treasury Secretary Scott Bessent also floated the move for Wall Street banks.

A fall in the price of food and drink offset a rise in fuel costs to keep overall inflation unchanged for the third month in a row in September. The Office for National Statistics said inflation held steady at 3.8% – below the 4% expected by the Bank of England and economists polled by Reuters. The figure prompted traders to raise their bets on a cut to interest rates at the Monetary Policy Committee’s next meeting in December. The softer reading also brought down government borrowing costs, alleviating some of the pressure on the public finances.

Plans being considered by Rachel Reeves to scrap the national insurance contribution exemption for partnerships have been criticised by lawyers and accountants. Dan Neidle at Tax Policy Associates calculated that the move would increase the marginal tax rate for partners from about 47% to 54% while David McNeill, director of public affairs at the Law Society of England and Wales, points out that, “law partnerships don’t get the same tax breaks for investment as other businesses but are now having to pay the same levels of tax.” Elsewhere, the British Medical Association warned the move would put added pressure on doctors working within LLP structures and one senior partner at a top accountancy firm predicted that many firms would shift from the LLP structure to incorporate as companies instead. The Times reports that the Chancellor could seek a carve-out for NHS GPs. However, tax experts warned that attempting a carve out for GPs would be “messy” at best and “insane” if badly handled.

Senior Labour figures are urging Rachel Reeves to reconsider the party’s manifesto commitment against raising income tax. Some MPs argue that increasing income tax would be a more effective solution for the public finances than smaller measures. The Chancellor is expected to raise tens of billions in new taxes due to poor economic forecasts. Economists also support raising income tax, suggesting it has the least negative impact on growth. A senior Labour source told the Financial Times that putting up income tax would be “like taking a single punch to the face rather than a thousand cuts”.

Nikhil Rathi, the chief executive of the Financial Conduct Authority (FCA), has raised concerns about the UK’s financial system amid rising geopolitical tensions. In a Mansion House speech, he asserted that the private ownership of critical infrastructure has left markets vulnerable to threats from organised crime and nation states. Rathi stressed the need to integrate finance into national security strategies, noting that recent cyber-attacks on firms like Jaguar Land Rover and Marks and Spencer highlight this vulnerability. He warned that British firms are “potentially massively under-insuring” against these risks, which could have severe economic consequences.

The Jaguar Land Rover (JLR) cyber-attack has resulted in an estimated £2bn loss, marking it as the UK’s most severe data breach. The Cyber Monitoring Centre reported that over 5,000 businesses were affected, leading to a five-week production halt at JLR. The shutdown incurred £108m in fixed costs and lost profits, with additional recovery costs between £50m and £150m. The Government has intervened with a £1.5bn loan guarantee to support the industry.

The Association of Chartered Certified Accountants (ACCA) and the Association to Advance Collegiate Schools of Business (AACSB International) have agreed a three-year partnership aimed at supporting business education. ACCA chief executive Helen Brand stated: “Accountancy is changing: accountants are driving sustainability, promoting social value and dealing with new ethical challenges, as well as enabling innovative technologies which are shaking up the world of work.”

The Confederation of British Industry (CBI) has named Cressida Hogg as the successor to Rupert Soames as president early next year. Hogg is chair of BAE Systems and also sits on the board of the London Stock Exchange’s parent company.