Low-growth but stable economy provides a platform for private enterprise businesses

The UK economy, like its Eurozone counterparts, has been stuck in low-growth mode for an extended period. UK GDP grew by just 0.8% in 2024, and we are expecting to that to only edge up slightly to 1.1% during 2025.

However, while these levels of growth are certainly unspectacular, they are at least relatively stable. We also have a UK government that has set out clearly its longer-term strategic goals in major set pieces such as the Spending Review and the Industrial Strategy, which helps give businesses clarity about future priorities and the direction of travel.

The government has also negotiated a number of trade deals, most notably with the US. Indeed, we were the first country to reach a framework deal with the second Trump administration. This will largely protect UK businesses from the US tariff regime, whereas businesses in many other jurisdictions still face uncertainty and worry. Other trade deals have been reached with the EU, India, Australia, New Zealand and Japan. While none of these, relatively speaking, are economically substantial, nevertheless they have a cumulative effect.

Dennis Tatarkov

Senior Economist

KPMG in the UK

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These factors in combination mean that there is a platform for UK businesses to operate with reasonable certainty – and may help explain the remarkable levels of confidence recorded in KPMG’s Private Enterprise Pulse Barometer, where of the 1,500 private and family-owned business leaders surveyed, 93% said they were confident about their future prospects.

Concerns over inflation, interest rates and the tax landscape

Nevertheless, there are challenges to deal with. When asked about the perceived barriers to growth, the most widely cited issue was inflation (45% of respondents) which was perhaps something of a surprise. However, we expect inflation to fall from its current level of 3.6% and reach the Bank of England’s target of 2% at some point next year. We don’t see inflation as a big risk going forward. Globally, the US tariff regime when fully implemented will have a deflationary effect, so this will add further impetus to bring levels down. Interest rates were named as another concern (30% of respondents) – but we also expect these to fall further, with more reductions this year and potentially in 2026 too.

Tax rises in the forthcoming Autumn Budget and (already increased) employment costs were other prevalent concerns. Certainly, recent government row backs on welfare cuts and the winter fuel allowance for pensioners have raised fears of a fiscal ‘black hole’ and fuelled speculation about tax rises in the Budget. The reality is that there are always many levers available to a Chancellor and tax increases are far from inevitable.

Private enterprises and family-owned businesses are of course especially sensitive to certain taxes including capital gains and inheritance tax as these have such an impact on exit, succession and value creation. It is not a surprise therefore to see these named prominently among the long-term factors that influence their planning for growth and investment – although it is interesting that it is macro-economic performance (UK and/or global) that tops the list. This underlines the importance of consistent and sound economic and public policy that supports business confidence and expansion.

AI key to the productivity challenge

Arguably, low productivity is the most critical economic issue facing the UK today. It is a real stand-out of the research that technology tops business leaders’ investment list by a long way – 67% naming it as their foremost investment area, far ahead of workforce & skills (36%) and sustainability (34%).

To me, this is very encouraging because technology, and AI in particular, has the potential to significantly boost productivity. Through automation and smart AI-enabled processes, efficiencies can be unlocked – while people have more time and capacity for higher value work. The recent agreement signed between the UK government and OpenAI to more fully embed AI in public services is a good case in point.

In an increasingly interconnected global economy, there is only so much any government can do to stimulate national GDP if the environment remains subdued internationally. Boosting workforce productivity is one of the most powerful levers there is. For sustained, long-term economic growth there is no substitute for improving productivity – and our research indicates where the solution may lie.

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