In Brief - September

1. Business Leader Confidence Plunges to Record Low Amid Economic Headwinds

UK business leader confidence in the broader economy reached a new record low in September 2025, according to the Institute of Directors (IoD) Economic Confidence Index, falling to -74 from -61 in August. This level of pessimism, the lowest since the index began in 2016, is largely driven by persistent economic challenges. Crucially, rising costs are a major factor, with cost expectations among business leaders hitting a new high. In response, investment expectations have sharply declined, with leaders delaying spending as they await clarity, particularly regarding the upcoming Autumn Budget.

This lack of faith in the national economic outlook is prompting a focus on internal resilience. While overall economic confidence is bleak, a paradox exists: a majority of leaders, including SMEs, remain confident in the growth prospects of their own businesses and plan to expand their workforce in the next 12 months. However, this internal optimism is tempered by a pervasive concern about government policy, with three-quarters of leaders expressing little or no confidence that the Autumn Budget will deliver pro-growth policies. Their top priority remains cuts to business taxes, such as Corporation Tax or Employer National Insurance Contributions, as they grapple with what is described as a 25-year high in the broader business tax burden. The key takeaway for management is that strategic planning must focus on optimising internal efficiencies and retaining talent, as they cannot rely on a favourable external economic or regulatory environment.

2. UK Retail Sector Navigates Dual Challenge of Falling Volumes and Increased Operational Costs

The UK retail sector is facing a complex and challenging landscape, characterised by falling sales volumes coupled with increasing operational costs. Data from the Confederation of British Industry (CBI) indicates that September marked the twelfth consecutive month of falling retail sales volumes, underlining persistent weak consumer demand. Retail sales volumes decreased year-on-year, and while there was a marginal monthly improvement in August, overall sales were still judged to be "poor." Non-food stores, especially online retail, saw volumes fall sharply. Simultaneously, retailers are battling significant rising operating costs, with increases in Employer National Insurance Contributions and the National Living Wage continuing to "hit the sector hard."

In response to these pressures, the strategy from management and leadership is two-fold. Firstly, there is a focus on strategic store closures to cut costs and concentrate resources on high-performing locations and digital channels. Secondly, there's a pronounced push toward digital innovation and alternative revenue streams. Retail leaders are aggressively investing in technology, with significant attention directed toward AI for enhancing inventory management, forecasting, and pricing strategies. Furthermore, finding new revenue streams is a recognised imperative for long-term growth, with only a minority of businesses currently acting on this by introducing new services or event-based offerings. The challenge for retail leadership is to balance aggressive cost-cutting with the necessary investment in technology and customer experience to secure future growth.

3. Technology and Upskilling Emerge as Critical Leadership Priorities

In a climate of economic uncertainty, UK business and management leaders are identifying technology adoption and workforce upskilling as central strategic priorities to drive internal growth and address skills shortages. The widespread recognition of Artificial Intelligence (AI) as a critical tool is evident, with nearly nine in 10 businesses planning to use AI to solve business problems over the next two years. These applications are varied, from improving customer experience and innovation to reducing operational costs through better data analysis and forecasting.

However, this push for digital transformation is hindered by a significant workforce skills gap, with AI and digital technology skills identified as the most in-demand area of shortage across the UK. Leaders are therefore prioritising internal investment to build capacity. A substantial proportion of CEOs are placing technology investment—including AI, cybersecurity, and digital transformation—at the top of their agenda. Furthermore, a significant number of firms are focusing on upskilling their current workforce to close the capability gap. For leaders, the challenge is not just the investment in new technology, but the management of a cohesive strategy to integrate these tools and ensure the necessary leadership and training is in place to capitalise on the technological shift. This focus on human capital investment, even amidst a wider economic slowdown, signifies a long-term commitment to productivity and competitive advantage.