Autumn Budget 2025, future proofing from an SME perspective  Previewing a critical budget for the UK economy and its government

While predictive modelling of the macro-economic environment is not a core attribute of the team, our clients depend on the JMAC team for economic commentary and analysis that feeds into broader decision making and business strategy.

However, as I wrote in my first article for the IoD in July (1), the fall-out from last year’s budget was highly predictable for both the JMAC team and the IoD membership. Since then, further evidence has emerged that only further support those predictions, as I reported in my most recent piece (2).

Given the current economic and political uncertainty in the UK, making predictions for this year’s Autumn Budget is particularly challenging.

However, given the favourable reviews I received for my previous two articles (for which I am very grateful) in this piece I will attempt to predict what this year’s budget might look like, and offer guidance to our membership on appropriate risk mitigation strategies.

How big is the “Black Hole”?

The first element that needs to be understood is the scale of the challenge posed by the impact of last year’s Autumn Budget.

With the National Institute of Economic and Social Research (NIESR) this summer reporting a funding deficit of £50bn needing to be closed (3), it is important that the administration steer away from repeating the errors made last year.

The figure quoted far exceeds the oft repeated £22bn “black hole” allegedly discovered by the administration upon gaining power, a “black hole” that the Institute of Fiscal Studies subsequently stated, “was obvious to anyone who dared to look” (4).

Should the NIESR’s figure of £50bn be accurate, the Chancellor will have significant work to do to satisfy the bond market, which now appears to be waking up to the risks the JMAC team warned of ahead of the election of this administration in 2024.

Bond Market turbulence adds complexity for the Chancellor

At the time of my first article’s publication in July, the JMAC team remained somewhat surprised by the relatively benign sentiment of the bond market towards the performance of the current administration at that stage.

One should not overlook the bond market’s volatile response to the Chancellor’s emotional appearance in parliament during Prime Minister’s Questions on July 2nd.

However, we interpreted the market’s reaction as something of a vote of confidence for the incumbent, reflecting the paucity of alternative candidates with a CV able to withstand the level of scrutiny one would ordinarily expect of a finance minister representing a G7 economy.

However, here at JMAC, we have long understood that the bond markets can be prone to significant error. The most glaring example being the failure to understand the imperfections of the euro’s construction in 1999, until the time of the Eurozone crisis during the aftermath of the Global Financial Crisis (5).

I frequently recall the conversations between myself (then a Business Analyst with just 2 years industrial experience) and my father (a Manufacturing Sector CFO) expressing bewilderment at how a currency union without either a defined lender of last resort, or an agreed fiscal transfer framework, could survive in its formative state.

Therefore, the apparent lack of recognition within the “expert” class of the underlying risks taking hold for the UK was not a great surprise to me, as I stated on LinkedIn back in July (6).

However, with the 30-year bond yield accelerating during August, it appears that both market sentiment and some of the legacy media class may be starting to catch up with our thinking here at JMAC.

Furthermore, the acceleration in yields for the key 10-year bond over the course of 2025 represents a material decoupling from the 10-year US treasury note.

At time of writing, UK 10-year bonds yields are approximately 60 basis points above those of its US counterpart. This represents a material widening over the year to date.

The volatility we have witnessed during 2025 comes as no surprise to the JMAC team, with bond market risk being the primary risk register item relayed to our clients ahead of the 2024 General Election once the election of this administration became inevitable.

While Public Sector Borrowing for the last financial year was recorded as £146.3bn, borrowing for the current fiscal year up to August (£83.8bn) is a staggering £16.2bn (7) ahead of the equivalent period last year.

With borrowing increasing due to the unfunded increases in state spending announced in last year’s budget, the chancellor now faces the predictable challenges of accelerating bond yields.

Could the MPC come to the Chancellor’s rescue?

The recent acceleration in bond yields came despite the decision of the Monetary Policy Committee (MPC) to cut base rates in August to its current level of 4%.

This decision was made despite inflation recently reaching double the agreed target (8), indicating that the committee believes the recent rise in prices will be temporary.

Although the impact of the current administration’s policies, the principal driver of the current inflationary spiral, should start to wane in the coming months, once inflation takes hold it can prove to be very challenging to keep under control.

Recent evidence to support the committee’s assumption of transitory inflation is far from comforting, given the insistence of the Governor of the Bank of England that the post lockdown inflationary spiral of 2021 onwards would also prove to be “temporary” (9). That this advice came despite warnings such as those provided by the JMAC team as early as May 2020 on our LinkedIn company page is a matter of great concern.

It appears that the MPC’s decision reflects a bearish view of the economic outlook, a sentiment shared by both the JMAC team and the IoD membership, which I cover in more detail below.

However, we continue to believe that sticky inflation will continue to hold the MPC back from pursuing the types of aggressive rate reductions that the Chancellor will be hoping for as she attempts to limit the ongoing damage wrought by the 2024 Autumn Budget.

Upsides remain, personal savings rates continue to provide hope

As discussed in my last piece, having navigated businesses through several turbulent economic periods during my career, I am confident that a recovery will take hold at some point.

With personal savings rates remaining at historically high levels (10), there is undoubtedly latent demand on the sidelines waiting to be unleashed should confidence return to the private sector.

Meanwhile, despite economic growth flatlining during July (11), strong Purchasing Managers’ Index (PMI) prints were reported for August (12). The report from S&P Global came alongside some evidence of improving sentiment that we have recently been seeing here at JMAC.

Unfortunately, August’s stronger PMI readings were succeeded by below consensus outcomes for September, with S&P reporting hiring sentiment indicative of further labour market strain (13).

Low growth UK is not an outlier

It is important to note that other European G7 economies are also facing significant economic policy challenges.

For example, Germany this year seeks to avoid its first annualised contraction in GDP since 2022.

Meanwhile, the recent political upheaval in France reflects a difficulty in gaining a political mandate for domestic public sector reform.

The struggles of the EU’s two largest economies come despite the apparent advantages of EU membership.

The Italian economy, however, continues to strengthen. Italy’s GDP recently surpassed the UK on a per capita basis (14), as the country benefits from an influx of high-net-worth individuals (15) turning their backs on jurisdictions considered more hostile to business such as the UK.

During my five years in Italy from 2005 to 2010 as Chief Risk Officer for a Private Equity backed business I would have viewed the probability of such an outcome to be negligible, such was the challenge of doing business in Italy at that time. To have arrived at this point within a relatively short period of time reflects incredibly poorly on the recent political leadership of the UK.

Meanwhile, predictions of an economic slowdown in the USA by the “expert” class appear to be misplaced. Despite repeated doomsaying around radical tariff and remigration policies, the US economy continues to outperform its European counterparts, thanks largely to the entrepreneurial spirit that drives its economy.

Here at JMAC we have long since learnt not to underestimate the strength of the US economy. The pivot towards technology and artificial intelligence in recent years, away from financial services prior to the GFC, is perhaps the most significant example of the apparent indefatigability of the US economy.

SME business confidence at all-time low

The low sentiment of UK SMEs, who have grappled with the fall-out from the 2024 Autumn Budget, is reflected by the IoD Business Confidence Index, which fell to an all-time low of -72 this summer.

Record low business confidence was also reported by the Federation of Small Businesses (FSB) during the summer months (16).

Results from the FSB’s members surveyed found that, “the share of small businesses who said that they expected their business to shrink, close, or to sell up over the next 12 months – 27 per cent – outweighed the proportion who predicted their business would expand – 25 per cent”.

This is the first time such negative sentiment has been reported through the FSB’s Small Business Index since its launch over 10 years ago.

While the IoD reported a slight uptick in confidence during August, the index plumbed new depths during September (hitting a new all-time low of -74), remaining below the previous lows touched during the uncertainties of the 2020 lockdowns and the “Mini-Budget” of 2022 (17).

Looking back at prior historical low points, questions have been asked of the members’ relative ambivalence towards the EU referendum result of 2016, when confidence levels remained relatively resilient (circa -20 points).

I suggest that ambivalence reflected two key overriding sentiments within the membership. Firstly, our members’ willingness to dismiss the outlandish predictions made on behalf of the Remain campaign ahead of the 2016 Brexit Referendum (which were largely discredited shortly after the vote).

Secondly, our members, perhaps naively, anticipated a level of competence and diligence commensurate with their own business practices to be reflected across the political class and civil service, thereby enabling the referendum result to be acted upon successfully.

I should underline that the importance of the secondary point was the principal driver of the author’s decision to vote to retain EU membership. While subsequent events only served to validate those concerns, this was also the principal driver of our bearish sentiment during that period.

What upside opportunities for growth?

One does have some hope that the recent cabinet reshuffle, which saw several high-profile casualties, including both the Deputy Prime Minister and the much “trumpeted” Leader of the House of Commons, offers the opportunity for a welcome change in direction from the current administration towards policies more supportive of economic growth.

The departure of the Deputy PM could have opened the door to greater flexibility on the proposed Employment Rights Bill. However, at the time of writing, the administration appears to have rejected the opportunity for further dialogue in this key area. This comes as a huge disappointment to the private sector, as reported recently by the IoD (18).

Furthermore, there appears to be little hope of further dialogue given the deeply concerning remarks from the front bench that were leaked during the recent Labour Party Conference (19).

However, there is potential for the Deputy PM’s departure to lead to an increased focus on housebuilding targets, which remains a significant potential upside for UK economic growth.

Unfortunately, housebuilding prospects were not helped by the PM’s reported failed attempt to change the leadership of the Department for Energy Security and Net Zero (20).

While this was a disappointing outcome, the administration may at least be beginning to recognise the harmful impact of the UK’s unilaterally punishing net zero commitments, written into law by the previous “Conservative” administration.

That the current “Conservative” leadership now seeks to row back on such economically destructive policies (21) comes as little consolation coming from a party that appears to be facing a future in the political wilderness.

Finally, the recent announcement of a potential agreement on nuclear power being reached with the United States (22) may give cause for more positive sentiment around UK energy policy.

Public spending restraint essential, but unlikely

With the recent backbench revolt over this summer’s proposed welfare reform bill (23) fresh in the mind of the administration, it appears unlikely that the government will attempt to address this issue again in the immediate future.

Similarly, with the PM recently recording the lowest approval rating ever recorded by IPSOS for a sitting Prime Minister (24), delivering the significant levels of public sector reform required appears too challenging politically.

Given the above, and despite the Chancellor’s recent revelatory recognition “that tax policy does impact economic growth” (25), I believe that the government will commit to further punitive tax rises this autumn.

Should such policies be accompanied by an unwillingness to address employers’ concerns over next year’s Employment Rights Bill, I fear that a meaningful economic recovery will not take hold in the private sector until the summer of 2026 at the very earliest.

What advice for IoD members?

Given our bearish outlook for the immediate future, the JMAC team continues to eschew the strategies that have seen us successfully navigate a series of challenging economic periods:

• Invest in AI, automation, and technology
• Maintain accurate and timely cash flow forecasts
• Manage down any superfluous business costs
• Maximise usage of any (few remaining) tax advantages
• Minimise or hedge exposure to variable rate debt holdings
• Optimise marketing spend
• Remain highly engaged with prospects and customers

While our most experienced members will be well versed in managing their businesses through periods such as the current one, new members should not hesitate to reach out to their ambassadorial team for support and take advantage of networking opportunities at their branch.

And finally, what do we want?

Talking to business leaders and entrepreneurs from both the IoD and our broader business network, a pro-growth budget that also seeks to address excessive public expenditure and welfare is seen as the most desirable outcome this autumn.

Meanwhile, a policy framework that lessens the pressure placed upon SMEs by successive governments would be welcomed, reflecting a need to reduce an excessive regulatory burden, punitive payroll taxes, and a punishing fiscal framework.

Similarly, policies that limit (and reverse) the exodus of entrepreneurs and business owners that we have seen in recent years are urgently required, thereby encouraging business investment.

Should the Chancellor not deliver such policies, I fear that, in best case, she will be returning to the dispatch box next year with an even more unpalatable series of options to select from.

The worst-case scenario, however, represents an increasingly uncertain future for both the bond market and for the Chancellor herself.

While I am not confident that we will see an outcome received positively by our membership this autumn, everyone at JMAC hopes that this year’s budget proves to be less damaging for the UK economy than the last.

Our members are waiting with interest, but most likely with a considerable amount of trepidation.

References

1. Institute of Directors. (2025, July). SMEs under pressure: Influencing policy with the IoD in an uncertain economic climate. https://www.iod.com/locations/south/surrey/news/smes-under-pressure-influencing-policy-with-the-iod-in-an-uncertain-economic-climate/
2. Institute of Directors. (2025, September). Autumn Budget 2024, A Year On: Reviewing a budget that continues to pose economic challenges. https://www.iod.com/locations/south/surrey/news/autumn-budget-2024-a-year-on-reviewing-a-budget-that-continues-to-pose-economic-challenges/
3. The Independent. (2025). Tax rises needed to fill £51bn black hole. https://www.independent.co.uk/news/business/rachel-reeves-niesr-chancellor-mel-stride-labour-b2802750.html
4. Institute for Fiscal Studies. (2024). The £22bn black hole was obvious to anyone who dared to look. https://ifs.org.uk/articles/ps22bn-black-hole-was-obvious-anyone-who-dared-look
5. JMAC Business Consulting Ltd. (2025, August). [LinkedIn post on Eurozone bond yields]. https://www.linkedin.com/feed/update/urn:li:activity:7363250211596517376/
6. Jackson, Martin. (2025, July). [LinkedIn post on UK bond market risks]. https://www.linkedin.com/feed/update/urn:li:activity:7351560587241222145?commentUrn=urn%3Ali%3Acomment%3A%28activity%3A7351560587241222145%2C7351689018817843200%29&replyUrn=urn%3Ali%3Acomment%3A%28activity%3A7351560587241222145%2C7351690374332981249%29&dashCommentUrn=urn%3Ali%3Afsd_comment%3A%287351689018817843200%2Curn%3Ali%3Aactivity%3A7351560587241222145%29&dashReplyUrn=urn%3Ali%3Afsd_comment%3A%287351690374332981249%2Curn%3Ali%3Aactivity%3A7351560587241222145%29
7. Office for National Statistics. (2025, September). Public Sector Finance Bulletin. https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/august2025
8. Office for National Statistics. (2025, September). Inflation and price indices. https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23
9. BBC News. (2021, August). Bank of England: Inflation will be temporary. https://www.bbc.co.uk/news/business-58098118
10. Office for National Statistics. (2025). Personal savings rates (dgd8). https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/dgd8/ukea
11. Office for National Statistics. (2025, July). GDP monthly estimate, UK: July 2025. https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/july2025
12. S&P Global. (2025, August). PMI: UK manufacturing and services, August 2025. https://www.pmi.spglobal.com/Public/Home/PressRelease/6cc2cf22e50541de84d7bf7904678c06
13. City A.M. (2025, September). Economy stalls, 50000 job losses ahead of budget. https://www.cityam.com/uk-economy-stalls-with-50000-job-losses-ahead-of-autumn-budget/
14. Il Sole 24 Ore. (2025). Italian GDP exceeds British GDP: Unexpected change. https://en.ilsole24ore.com/art/italian-gdp-exceeds-british-gdp-unexpected-change-AHKE6mEC
15. CNBC. (2025, September). How Italy’s flat tax regime has sparked a super-rich boom in Milan. https://www.cnbc.com/2025/09/05/how-italys-flat-tax-regime-has-sparked-a-super-rich-boom-in-milan.html
16. The Times. (2025). Small business sentiment at record low, poll reveals. https://www.thetimes.com/business-money/companies/article/small-business-sentiment-at-record-low-poll-reveals-33zj7988n
17. Institute of Directors. (2025). IoD press release: Business confidence at record low.https://www.iod.com/news/uk-economy/iod-press-release-business-confidence-falls-to-new-record-low/
18. Institute of Directors. (2025). IoD press release: Government’s rejection of Employment Rights Bill amendments sends alarming message to business. https://www.iod.com/news/employment-and-skills/iod-press-release-governments-rejection-of-employment-rights-bill-amendments-sends-alarming-message-to-business/#:~:text=At%20the%20same%20time%2C%20six,their%20concerns%20are%20being%20ignored.
19. City A.M. (2025, September). Labour minister calls out Employment Rights Bill critics. https://www.cityam.com/exclusive-peter-kyle-says-employment-rights-critics-come-from-certain-educational-backgrounds/
20. The Independent. (2025). Starmer reshuffle: Ed Miliband remains energy secretary. https://www.independent.co.uk/news/uk/politics/starmer-reshuffle-ed-miliband-energy-secretary-b2822507.html
21. City A.M. (2025, October). Conservatives to scrap Net Zero. https://www.cityam.com/tories-vow-to-scrap-net-zero-targets-and-prioritise-cheap-energy/
22. BBC News. (2025). UK-US nuclear power agreement.  https://www.bbc.co.uk/news/articles/ckgzevzwxwro
23. ITV News. (2025, July). Government welfare concessions.  https://www.itv.com/news/2025-07-01/starmer-wins-key-welfare-vote-after-making-major-concessions
24. IPSOS. (2025). PM hits historical low satisfaction rating.  https://www.ipsos.com/en-uk/reform-uk-leads-12-pts-over-labour-both-pm-and-chancellor-hit-historic-low-satisfaction-ratings
25. The Independent. (2025). Rachel Reeves: Tax policy impacts economic growth. https://www.independent.co.uk/news/business/rachel-reeves-cabinet-keir-starmer-chancellor-budget-b2823843.html

This is a guest article which contains views of the author and does not necessarily represent the views of the IoD.