Rising costs weigh on business sentiment

13 October 2025

Deloitte’s third quarter CFO Survey, conducted in the second half of September, shows a softening of business sentiment, largely unwinding the pick-up in confidence seen in the first half of the year.

Cost pressures have moved to the fore with CFO expectations for operating costs rising to the highest level in more than four years.

Concerns about UK productivity and competitiveness have also increased and stand at the highest level since we first asked this question in 2014. Productivity and competitiveness now rank joint first with geopolitics on CFOs’ risk list.

This is consistent with a wider story of high inflation and wage growth. UK inflation is running at 3.8% inflation, the highest rate in the G7, and seems likely to hit 4.0% or even more before the end of the year. In April the National Living Wage increased by 6.7% and companies faced the largest corporate tax hike in 30 years as new, higher rates of employer NI (national insurance) came in.

Official data suggests that higher costs are not being offset by gains in productivity. On the contrary, the latest data shows that output per hour worked in the second quarter was 0.8% lower than a year earlier.

CFOs have responded to these pressures with a focus on cost control, building cash reserves and reducing debt. These measures, however, seem unlikely to be enough to preserve margins. Most CFOs expect operating margins to decline in the next 12 months.

One bright spot is a slight decline in concerns around geopolitics. While it remains at the top of the CFO risk list, along with UK productivity, the absolute reading has declined, perhaps in part as a result of a series of US trade deals in recent months (the survey closed before the latest US-China spat over tariffs).

After an improvement in the first half of the year UK business sentiment and risk appetite have softened amid growing concerns around costs and competitiveness. The findings are consistent with our view that the pace of UK GDP growth is likely to slow in the second half of this year. High inflation, business caution and slowing growth create a challenging backdrop for the chancellor’s budget on 26 November.

PS: We’ve written recently about the surge in the valuation of tech stocks in the US with the ‘Magnificent Seven’ US tech companies, now accounting for more than 30% of the S&P 500’s market capitalisation. Last week IMF managing director Kristalina Georgieva warned of the danger of a sudden correction in stock markets as AI tech stocks push past valuations seen during the dotcom boom. Jamie Dimon and David Solomon, CEOs of US investment banks JP Morgan and Goldman Sachs, have given similar warnings and highlighted the risk of a market correction in the next 24 months.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week down 0.7% at 9,427.

Economics

Gold prices continued their upward trajectory, reaching a new record of over $4,000 per troy ounce on concerns about US inflation and global public debt levels
Emerging market equities have seen their strongest performance since 2009 so far this year, as a weaker dollar and low valuations increase investor demand
Cocoa prices fell to a 20-month low of $6,150 per tonne, down from over $12,000 in December last year, following a slowdown in chocolate demand and expectations of improved crop yields on better weather
China imposed docking fees on US-owned ships and announced new export controls on magnets that contain Chinese rare-earth minerals or utilise Chinese production methods
US president Donald Trump said he will impose a 100% import tariff on Chinese goods and cancel his proposed meeting with Chinese president Xi Jinping in retaliation for China’s announcement of export controls on critical minerals
Sanae Takaichi is expected to be Japan’s next prime minister after being elected as the first female leader of the ruling Liberal Democratic Party (LDP). Japanese stocks rose and the yen depreciated as investors priced in easier fiscal policy
The UK government said it would defend the UK’s steel industry following the EU’s announcement that it would increase imported steel tariffs from 25% to 50% and reduce tax-free import quotas
The European Commission said the UK must fulfil its commitment to checking goods entering Northern Ireland before it signs a veterinary deal designed to increase food and agricultural trade, the FT reports
The ONS revised down its estimates of government borrowing this fiscal year by £2bn, to £82bn, following an error in VAT receipts
The UK’s Financial Conduct Authority estimates that compensation for customers exposed to the recent car-finance mis-selling scandal will reach up to £11bn, one of the largest compensation schemes on record
German industrial production declined significantly in August, taking production back to 2005 levels (excluding the COVID-19 pandemic and 2008 global financial crisis)

Business

The US Department of Justice opened an inquiry into the collapse of US auto supplier First Brands Group. First Brands’s creditors alleged that up to $2.3bn of assets had “simply vanished”
The FT reports that Ford, General Motors and Stellantis — the three main US auto producers — are forecasting a combined $7bn tariff-related reduction in earnings in 2025
Chinese authorities opened an investigation into US semiconductor manufacturer Qualcomm, saying it failed to report the acquisition of Israeli tech firm Autotalks
US tech giant OpenAI has agreed approximately $1tn of deals this year with chipmakers in order to provide sufficient computing power to run its AI models
HSBC made a $13.6bn offer to fully acquire Hong Kong’s Hang Seng Bank
Danish pharmaceutical company Novo Nordisk is expected to buy biotechnology company Akero Therapeutics for up to $5.2bn as it seeks to expand beyond its key Wegovy and Ozempic drugs
The UK government is likely to increase value-for-money thresholds that the NHS pays to pharmaceutical companies for medicines, following a recent breakdown of negotiations between the industry and the government over drug pricing
The UK Competition and Markets Authority is expected to impose additional rules on Google after it became the first company to be given a “strategic market status” due to its dominance in online search and advertising
UK registrations of battery electric vehicles in September reached a record high of 73,000, supported by the government’s new electric car grant and a greater variety of EV models
The UK is now the second biggest market for Chinese car manufacturer BYD following a surge in sales in September compared with last year
UK car manufacturer Jaguar Land Rover restarted its production line following a cyber-attack that caused a month-long shutdown
The University and College Union said more than 12,000 job cuts have been announced by the UK’s university sector over the past year reflecting the financial problems of the sector

Global and Political

Mr Trump called Spain a “laggard” and suggested it should be “thrown out” of NATO over a lack of commitment to NATO’s spending target
Pakistani military officials approached US officials with an offer to build and operate a port on the Arabian Sea that would increase US presence in the region, the FT reports
Sanae Takaichi was set to become Japan’s next prime minister prior to the Komeito Party pulling out of the ruling coalition with the LDP over disagreement about political funding regulations
Sébastien Lecornu was reappointed as France’s prime minister after initially resigning on Monday last week over a lack of consensus between the ruling coalition on how to reduce the government’s budget deficit
UK prime minister Keir Starmer said that an increase in visas for high-skilled workers from India was “not part of the plan”, as he travelled to Mumbai with UK business leaders to promote UK-India trade

And finally… a London-based company has used AI to analyse biosensor data and historical information about trees to enable passersby to “converse” with individual trees in London, Dublin and Austin Texas – deep-rooted conversation

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