In an unwelcome verification of the Chancellor’s repeated reminders that we are living in a ‘changing world’, within hours of her Spring Statement her fiscal goal posts were facing an unceremonial relocation by the threat of 25% tariffs on all motor vehicles and parts exported into the USA.

This followed hard on the heels of post-Statement observations by numerous economists that Rachel Reeves’s measures might restore her lost economic wiggle room, but at a mere £9.9bn against annual government spending of £1.5tn this offered precious little protection against the metaphorical puff of wind that could blow her back off course once more.  These tariffs seem more like a Force 9 gale, if of course President Trump follows through on them.

These near-simultaneous demonstrations of the fragility of the public finances and of the reality that in a global world, individual governments are very far from masters of their own economic destiny have served to strengthen a mood of cautious pessimism suffusing the UK business community. Immediately after the Statement but before the tariff threat, business leaders were rushing onto the media with concerns about what the Chancellor might be forced to do about taxes and spending in the Autumn Budget, or even sooner than that.  How much more risk averse must they feel now.

The timing of these developments could hardly be worse for business confidence, coming only days before the cost hikes imposed by last October’s Budget finally morphed from anticipated threats into real financial pain as they landed at the beginning of April with a devastating and damaging thud on the cost bases of businesses right across the economy.

The Spring Statement

The Statement covered both sides of the government spending coin, on the one hand with the pre-trailed cuts to welfare and the Civil Service to rebuild the £10bn fiscal buffer that world events had taken way. On the other there were details of increased defence spending and more commitments to infrastructure projects. What is certain is that the measures announced in the Statement  will create both opportunities and problems across a broad swathe of sectors and businesses.

The Economic background

What economic data is Rachel Reeves using to guide her current fiscal strategy?

GDP

• January 2025 confounded market expectations and not in a good way. GDP fell by 0.1% in contrast to predictions of a 0.1% rise. December 2024 had seen a 0.4% upward bounce.
• Breaking the economy down into its constituent parts, services GDP was up 0.1%, production down by 0.9% (and manufacturing within that fell by 1.1%) and construction was 0.2% lower.
• The less volatile three-month GDP movement to January 2025 was up 0.2%, driven by the positive outcome for December 2024.

Inflation

• CPI inflation in February 2025 retreated from 3.0% in January to 2.8%. This was marginally better than the consensus prediction of 2.9%.
• A major factor was the drop in clothing and footwear prices—bad news for the UK’s embattled fashion retail sector, especially as their costs continue to soar.
• ‘Core’ inflation (excluding the more volatile elements, such as housing and energy costs) also fell, dropping from 3.7% to 3.5%.
• Service sector inflation has stabilised for now, remaining steady at 5%.
• February’s fall is widely acknowledged to be a false dawn, with the impact of the price rises driven by Budget cost hikes, the rise in the energy price cap and soaring council tax all due to hit the calculations from April onwards.
• Some economists expect inflation to peak at 4% and even the Bank of England is accepting a possible 3.7% level in the autumn. The OBR now predicts it will average 3.2% in 2025 before eventually falling back to the target level of 2% in 2027.

Employment

• Labour force data published by the Office for National Statistics is acknowledged by ONS to be unreliable and would be ignored if it wasn’t so crucial to government fiscal policy.
• Unemployment rose slightly from 4.3% to 4.4% in the quarter ending February 2025, marking a 0.4% increase compared to pre-pandemic levels.
• Economic inactivity is heading the other way, falling slightly from 21.6% to 21.5%.
• Vacancies were close to parity, but still dropped by a marginal 1k. They now stand at 818k.
• Pay growth remains worryingly high at 5.9%, or 2.2% after accounting for inflation, posing an ongoing threat to inflation control.
• Research by Grant Thornton has found that 70% of SMEs anticipate reducing or freezing hiring plans for 2025, taking the sector which accounts for the vast majority of jobs out of any employment growth possibilities.

Insolvencies

• The non-seasonally adjusted number for February 2025 of 2,008 company failures across the whole UK was a fall of 10% compared to February 2024 and almost exactly on a par with figure of 2,038 for January 2025.
• The rolling twelve-month total is now 25,352, 7% lower than in February 2024 and 1% lower than in January 2025.
• Despite dire warnings in the media, especially from the sectors worst hit by the Budget cost increases, there has not yet been a surge in Creditors’ Voluntary Liquidations (CVLs) as droves of battle-weary companies were supposed to throw in the towel. UK entrepreneurs are famously positive and resilient, despite the toxic cocktail of negativity many are facing.

What’s next for UK businesses?

In the short and medium term, sentiment is just as likely as economic data to shape events—especially consumer confidence in spending and the business community’s willingness to invest.

Both groups now face a barrage of downward revisions to the UK’s 2025 growth outlook:

• The OECD has cut their forecast from 1.7% to 1.4%.
• British Chambers of Commerce dropped theirs from 1.3% to 0.9%.
• The Bank of England has halved theirs from 1.4% to 0.7%.
• The Office for Budget Responsibility also halved its forecast from 2% to 1%.

Little wonder that KPMG’s latest research shows that out of a sample of 3k consumer respondents:

• 43% are reducing expenditure.
• 33% are saving more as a contingency against hard times.
• 29% are deferring big ticket purchases.

Attitudes are being shaped by the likelihood of slower interest rate cuts than expected. Most pundits predict only two more cuts this year, bringing the base rate to 4%. Additionally, geopolitical uncertainty—stemming from conflicts, trade wars, and unpredictable actions from 1600 Pennsylvania Avenue—looms large.

Meanwhile, most businesses are holding off, awaiting further government measures in the Autumn Budget. The well-respected Institute for Fiscal Studies estimates there’s a 50% chance that taxes will increase at that time. Who except the most adventurous entrepreneurs would feel comfortable committing to major investment in this climate of rampant uncertainty?

Ultimately, if consumers won’t consume and investors are too nervous to invest, the economy will continue to go nowhere. In that scenario, UK businesses must keep their risk awareness hats firmly in place and proceed with appropriate caution.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.