Economic Roundup August 2026

Kirsty McGregor: Hello, and welcome again to Capitalise's Economic Roundup for Small Businesses. Now, this month, we've a special edition with a guest presenter, the new Head of Partnership Management at Capitalise, who's going to be looking after our accountancy channel, Wendy Smith. Hello, welcome, Wendy!

Wendy Smith: Hello, thanks for the invitation. I'm very excited about my new job and all the opportunities that it's going to bring.

Kirsty McGregor: Brilliant, so are we. We're delighted to have you with us. I've worked with Wendy for a long, long time, and, through various roles that she's had. She's got a fascinating background. She's become quite the expert, over the past 10 years in the innovation space. Her most recent roles have included the World of R&D tax credits, Scaling innovative businesses, Innovate UK Business Growth, which I used to know as Innovate UK Edge, that's changed its name, and engaging with networks and cultivating relationships when she was with Innovate UK. So, this means she's seen a considerable number of innovative businesses and companies.

And so what I'm going to be asking her today to do is discuss that with us, as it's her area of expertise, and share what she thinks makes the successful ones work. Now, it's not her first rodeo there. She's been on this podcast before, when we called it something else, back in the post-COVID times. And, and so it's going to be great to have a catch-up on the innovation area again with her, because that was one of my most interesting interviews that we did around that time. I was fascinated by it. And excited by it! But before we get into that exciting stuff.

Paul isn't here, but Paul normally does the economic roundup, and so you're gonna have to bear with me. I am going to do my best to give us a very quick roundup of where we're at in the global macro and the UK economy. It's still quite a tricky time. We're not out of the woods yet. Let's just think about the US first of all. The US over there, the president is still frustrated with the Federal Reserve, they haven't yet reduced his interest rates. And they're not likely to do so either, when they meet again on the 16th of September, mainly due to their inflation not coming down enough yet, very similar to the UK situation. Their unemployment is kind of steady, it goes up a bit, down a bit.

But the August Purchasing Managers Index has jumped to its strongest level since 2022, so that's predicting US growth. Could be close to 3% annualized. So that would be great, but, of course, there's still so much uncertainty with the Iran war, the persisting uncertainty around energy prices, and the tariff conversations have not gone away.

So, back into the UK, and all of that is very similar, actually, over here. Our job market, though, is a bit softer. Unemployment is at 4.9%. And vacancies, which is an interesting statistic to look at, is the lowest in 12 years, apart from the COVID times. Which makes you think that, you know, employers are just not confident enough to recruit at the moment.

Private sector wage pressures have eased a little bit, but public sector wage pay rises are now ticking through, and that's going to mean inflation doesn't improve in the short term, and also higher energy costs impact that for us too.

So, needless to say, the Bank of England hasn't been rushing to cut its interest rates yet. The latest vote was 6-3 to keep the bank rate at 3.75%. We will see what happens in September, but personally, I'm not expecting anything too dramatic.

Growth is holding up. It grows 0.4%, and then it dips, and then they revise the figures, and it's up and down and up and down. Business investment is up 1.7%, but the continuing concern is productivity.

And, output per hour is actually lower than it was a year ago. But again, the most encouraging news is that businesses themselves are telling us in the Purchasing Managers Index in August that the private sector, they think, is growing at its fastest pace.

Services are strengthening, and business optimism is improving.

So maybe this is the impact of the new government. Time will tell. There is some more hope out there, perhaps, but I'm going to come back to this at the end of this chat when we look forward to the autumn budget.

So, that's where we are in the global macro and UK economy, but let's get back to Wendy, because there are some snippets of very good news out there, and we need to know where they are. It does feel, doesn't it, like we are in this new government, with Andy Burnham's new cabinet, and his PR approach and social media approach is certainly very different to Keir Starmer's.

But, his policies around innovation are not that unusual from what we've seen so far, it is certainly something that the previous Starmer government and the various Conservative governments before that all agreed, in that they should be investing in innovative companies.

In 2017, Theresa May had an industrial strategy where she was backing sector deals with AI and other key sectors, such as life sciences, automotive, aerospace, and creative industries. So that was back in 2017, 9 years ago. And then in 2023, Jeremy Hunt then came out with 5 growth sectors, with specific state support and tax incentives for digital technology, green industries, life sciences, advanced manufacturing, and creative industries. You can see there's a theme here. And then, in 2025, when Labour published their industrial strategy, they called it the ISA to eight key sectors, those sectors that had the highest potential.

So they are advanced manufacturing, clean energy, creative industries, defense, digital and tech, financial services, life sciences, and professional services.

And these have mostly been adopted by Innovate UK, and the funding round that they have got has focused on 6 of the 8 of that, so it's now the IS6 for the Innovate UK purposes, where financial services and business and professional services have lost out, but the other 6 have still got some funding available to them. So, finally, Wendy it's your turn, and I'll be quiet and listen to you for a while, but can you now please explain what Innovate UK are going to be offering to these six sectors, if any of our listeners are in these sectors, or they have clients in these sectors?

Wendy Smith: Yes, of course, happy to do that. And I have to say, the whole strategy was being put together while I was still at Innovate UK, only having recently left, and it's looking really exciting what the plans are.

I'm going to pick you up on the fact that those two sectors have missed out. I think there's a real drive that the professional services and financial sectors have really got a real key role to play in helping UK PLC and the innovative businesses we've got move forward with rapid pace, which is the goal for Innovate UK and the whole of UKRI.

So, if you're an SME, and you're looking at a project to develop and grow and scale in the UK, then what you're looking for from Innovate UK is some really good support. So what you'll do is, beyond the funding that they have, so we all know Innovate UK around the grants that are available to help you fund the R&D activity, the companies will also benefit from real tailored support. And you may have heard the term velocity. So there's a real emphasis on helping those businesses, fund them, invest in the R&D, and then commercialise them, grow, and scale as rapidly as possible.

And that is the place where the business part of Innovate UK that I worked for, which was the Innovate UK Business Growth is key in doing that. So, you would apply for your grant. If you were successful, and there's a lot of competitions around the grants, we can talk about how you can focus on how you're best gonna win a grant, but, you would win your grant, and then you would get one-to-one support.

Through the Innovate UK Business Growth Service, which is focusing on commercialisation aspects. So, how you're protecting your IP, how you beyond the funding look for additional investment in your business. How do you do that, how do you build your skills within your team? How you tell your stories, how you get different types of support from the professional network that there is.

So those businesses. That's the Innovate UK Business Growth Support. And then also key to that is Innovate UK Connect, and their team is very much more sector-specific. So there'll be real key, specialists in your sector. And they will help you, connect you across different parts of the ecosystem to help you on your journey as well. So it's really great recess of what the support Innovate UK are doing.

And it's really focusing, as you've said, on those sectors that the UK has decided, with lots of research and experts looking at the sectors, to see where the UK has the right to win.

So, we need to be investing, because this is taxpayers' money, we need to be investing in the sectors and areas of specialism where we can be truly global winners, and that's the real emphasis of the funding going forward. But beyond that, the support that you can get to help you on that journey to grow, scale, and go global.

Do you want an example? I have a little bit of an example, if you wanted one.

Kirsty McGregor: Yeah, and also, I was just going to check that the extra funding, the extra support, sorry, is included. You don't have to pay for that separately, So, it's like when a business has been identified as a potential winner, and has got the capability of being, scaling at pace, then it's now Innovate UK are wrapping all their resources around that company and really trying to help drive it forward, isn't it? They've gone deeper into some sectors, haven't they, instead of spreading themselves so thinly.

Wendy Smith: That's right, that's right. And they are currently in a pilot mode, so they're trying new ways of giving support and focusing on these areas, and I think this next 12 months will be, well, in fact not 12 months left now, is it? So, this financial year, that's what they're testing out, how can this velocity approach work and be effective for businesses going forward with a full-on launch next year, yeah.

Kirsty McGregor: So, what was your example?

Wendy Smith: Oh, well, just for the right to win, and one of my examples would be that we look at wind farms, and we, the UK, generate a lot of our electricity from the wind farms now. We're an island, which makes a lot of sense. But what R&D needs to be done in wind farms, we've lost the opportunity to actually build the structures themselves, there's other areas, you know, a lot of that's coming from China, it's being built around being China, but one of the areas that hasn't, the problem hasn't been solved yet is that, we want to potentially move the wind farms in the sea around so that they're not always in the same place. As we know, the wind doesn't come from the same direction all the time. It might be that we need the coastal areas for something else, so perhaps some R&D around how to do that. How do we solve that problem that we can move the wind farms around effectively and efficiently?

So that's just an example of how, you know, that's something that globally hasn't been fixed as a problem, and you could see there would be a real need for that sort of technology.

Kirsty McGregor: So you'll have seen an awful lot of businesses out there who've had these ideas which they think are innovative, but not all of them are going to be successful, because they are high-risk strategies, they're usually expensive, and inevitably some of them will fail. So, explain what you've seen are the common traits with the ones that are successful.

Wendy Smith: The ones that are successful, the founders and entrepreneurs really, look at the support that they can get. They listen to guidance that they're being provided by experts in their area.

They surround themselves with a great team so they understand their skills, what it is that they can do. I mean, lots of entrepreneurs focus on the tech, we don't focus on the commercialization piece, and you need to get a really good team around you to be able to do it and take that business forward.

I was a business coach in this area for five years, you would often meet the best team, the best founder, with the worst idea.

Not necessarily the worst idea, but the idea that you think, really, is that going to scale? Is there really a market for it?

And then you would find a founder that had the best solution for a problem. But they either wanted to hold it to themselves, they didn't want to listen, they just wanted to go globally on their own, and didn't share that experience with them, with the right team around them. So that was a particular pattern that you would see.

And I met several that were so focused on their solution that when you met them and you looked at what funding was available in their sector. And you saw that there was something that the government was putting out grant funding for, and all they needed to do was pivot their idea a little bit, sort of tweak it and change it, because that was the funding. And they were just like, no, that doesn't fit me. Whereas, actually, if you think about it, the government has got, as I said earlier, a team trying to decide where this money is best going to. You know, what's the best bet for our taxpayers' money? And if they think that's where the market is, then if you're a founder, you should be trying to adapt yours and benefit from that thinking.

And we know that you can go that route, and then you can tweak it back again if the funding in your idea works, but to get yourself going, you need to really understand what's being asked for.

It's coming up with a solution, making sure that your solution is fitting a real-life problem that is really looking for an answer. Back to that, where do we have the right to win? We need to be winning these ideas. We need to remember this is taxpayers' money, so it's not free money. It's not free support, we're all investing in growing UK PLC, which should be great for the country.

Kirsty McGregor: So talk a little bit more about, you know, you said they're very competitive, the grants. The smart grants are on hold at the moment, aren't they? But there are other competitions, as they call them, where you can bid for different grants. Which are much more sector-specific, but they're still, they need to be aware of the competition, don't they? And you can find all these on Innovate UK's website, can't you? I mean, it's all publicly available.

Wendy Smith: That's right, and that's the best way to do it, and if you go onto the Innovate UK Business Connect website, there's a page there you can ask it to alert you, so you can select it by sectors, and it'll alert you to what grants are coming up, and that's the best way to focus on the Innovate UK ones. There are other grants out there, and often, you know, the local regions have grant funding for certain projects as well. And part of the Innovate UK business growth support is to help you identify the right grants for you and your project, and how you fit into the scope of it. It's very important to understand how your project fits into that scope, because it is a competition.

The SMART grants have been suspended, put on pause, because the competition was so huge. I mean, they were getting businesses that were scoring 95% and still not getting the funding, because it was a portfolio approach, and if they had somebody else that was doing something that was slightly better than you, then you couldn't do it, you wouldn't necessarily win. And often, we would be handed those businesses as Innovate UK Business Growth to help them seek other funding routes. We're still part of Horizon Europe, there's European funding as well, so all of that support helps you identify it in the world of AI. Now use your AI to help you identify the right ones for you, and then really, really make sure that you meet the scope and the criteria when you're putting your application together.

And I would always say the process of going through the application is a really good way of understanding your business and its strategy, because each of those, your strengths, all of those key things and weaknesses. So, if you go there and it asks you about the team, and you look at your team and you think, oh, well, we've got nobody that understands sales and marketing, or we've got nobody, really, that can do finance, then we really need to be not necessarily employing somebody, but getting, a collaborator or, a consultant to help you and really understand it. And there's a lot of great resources out there for people to look at and help find that, and so you can build up your understanding of how best to demonstrate that. So that whole process takes a lot of time. And let's face it, most people will be disappointed, I'm afraid, because it is a competition, but the process in itself is a good investment.

And I've had clients that have scored really high on an Innovate UK one, but not been successful, and then they've tweaked their, application and gone to another grant opportunity, or even to the banks and spoke to them about it, and then that's helped them get funding in that sort of direction as well. The assessors give you a lot of really good feedback. They have to, you know, that's what they're paid to do is to assess it, score it, and then give you good feedback, and that'll give you some really good learnings as well.

Kirsty McGregor: Yeah, fantastic. So, you talked about finance a little bit there. So, I think that's quite often a gap for most innovative companies. I know I've worked with some work with Innovate UK and their loan offering, and that was always their concern, that the tech skills were amazing, but the ability to manage the finances, and especially when we're trying to commercialize something, is where they're really concerned as the government. So this is where the accountants can really step into their own. As you said, they don't have to be employed by FDs, they can use a really great firm of accountants. So it seems to me that there's a greater opportunity at the moment, for accountants to target these businesses as clients, and if this is a growing market, how then do you think accountants could maximize their chances of securing some of these fast-growing businesses as clients?

Wendy Smith: Well, this is a little bit of an opportunity to say what my role was within the central team. So, my role was the business service manager external, and that was specifically to go out and look for external collaboration, and obviously that's where I came and spoke to Kirsty about the collaboration with accountants to help identify, really innovative businesses that Innovate UK could work with, but also how can we help the accountants identify businesses that are good for them. And, obviously, I got speaking to the guys at Capitalise, because lending is a real problem that Innovate UK are trying to solve. They can't just give grants. Everybody can't get an angel investor, they can help and train on that, but businesses need to be better understanding of their financial position for lending, as well as other types of funding options that there are.

So where do accountants come into that? Well, there's two ways of looking at it, aren't there? What's in it for the accountants, and what's in it for the businesses that are working with them? We'll start with the businesses that want to work with a really good accountant. So, as Kirsty says, a lot of these founders don't have that financial experience. They might be at a really early stage, and they are going straight to a bookkeeper, and that's how they approach their finances. They're not thinking about forecasting, they're being asked to put a pitch deck together, they don't know what their forecasting should look like, they don't know what numbers are realistic, they don't know these things, and there's a really important role there for accountants, to give guidance on how best to have your business for the future, if you truly want to be a fast-growing business in the innovation sector.

And I think it's important that accountants themselves, from their perspective, that they are really showing that they are a good advisory, when you're meeting businesses for the first time, and they're telling you about their projects and what their plans are, to be listening and seeing and understanding, thinking, well, this one could be a really, a real goer. I want to put more than the essentials in. I want to give this client more to help them on their journey, and that goes back to what I was saying about the role that professional services has in the innovation world in the UK, on the basis of the fact that it's part of accountants' role to help these businesses go faster and quicker, and helping them with all those identities. So, we've got Innovate UK and investors and lenders all looking to back businesses that have good growth potential, then there's a really good role here for accountants to play a part in that as well.

Kirsty McGregor: And I guess, having worked in the accountancy world, and still working with firms that are in that space asking the right questions is absolutely key, isn't it? Because a business comes to you, and it might be a startup, or it might be at a very early stage, and so it doesn't look very attractive on the face of it to an accountancy firm. They're probably going to think, oh, they haven't got the fee capacity for this, they're not going to want all these extra resources, all these extra services from us. They're just going to want the basic tax return, payroll, and, you know, very much compliance services. And it is about digging deeper, isn't it? And understanding, because the business owner might not know what to ask for.

Wendy Smith: They don't know what they don't know, do they? That's the thing. Exactly.

Kirsty McGregor: We end up with this breakdown of communication, where neither's asking for the right questions, and therefore, we don't get that collaboration, which is so powerful. Because when you've got accountancy firms suggesting things to the business owner, is this what you need next? How do we look forward? How do we make sure you're in the best place when you're ready? How do we make sure you're ready for angel investment at the right time? Or maybe VC, private equity investment. Or bank lending, or whatever it might be. You know, that takes time to build that up, and it's very much something the accountant advising should and will be able to support with, rather than just leaving the founder to assume that the founder knows how to do that themselves.

Wendy Smith: Yeah, and I have to say, when I started doing the Innovate UK Business Growth Consultancy piece, and not consultancy, coaching, I would meet these individuals, and they were brilliant. I was thinking, what do I know that I can help them with? And then when you start asking questions you start unpicking their confidence, because, well, not that that was the goal, to unpick their confidence. You would identify where the gaps of knowledge were. And having come from Experian, where credit was a really big thing and seeing what people ask, you know, how are you focusing on your credit? How are you doing with your debt? How's your supply, you know, if you're part of the supply chain, how are you getting paid for stuff, all of those sorts of things. And you just start unpicking that a little bit, and you would see that they were really appreciative of your knowledge and experience once you start asking those questions. And then that gives them the good grounding to carry on and scaling them, and real opportunities for accountants to prove their value as well.

Kirsty McGregor: And I think in order for accountancy firms to stand out, if they wanted to stand out and to show these innovative businesses out there who are googling, which accountancy firm do I use, or they're asking ChatGPT or AI, who do I use. They are going to focus in, as a founder, on those accountancy firms that are showing understanding and knowledge of this innovative ecosystem, where they might be having blogs and articles on their website and their social media, talking about what's going on at Innovate UK, or what's going on with R&D tax credits, or success stories, you know, and of where they've helped a business scale, and where they've got investment for a company, or they've got some successful lending in place for growth. All of those things really help build the picture for a founder that's shopping for an accountancy firm to get some confidence that this firm isn't a traditional, old-school accountant that's just going to look after their bookkeeping and compliance for them, but can give that extra service and advice, and support them on that longer-term journey. And they'll just be a much better match then. So yeah, I think for an accountancy firm and marketing teams to really focus on some content like that. Because I look at most websites for accountancy firms, it hardly covers things like that. It's very compliance-led, isn't it? Yeah.

Wendy Smith: So, having joined that team at Innovate UK, and having done R&D tax credits for 6 years, I was the R&D tax credit specialist,but we weren't allowed to say, go and work with this firm, but I would always tell them, like, to look at their websites from an accountancy perspective, and all the things that you've listed. Do they talk about this? Do they mention this skill set? Who are their other clients? Because you want to work with an accountant that's got a good track record of working with small businesses that scale, because then they've got the knowledge and experience and proven advice, good advice that's helped these businesses grow and scale.

Kirsty McGregor: Yeah, absolutely. Look, it's great to have had you on the call today, Wendy, just to discuss all of this, and I'm delighted, as you know I am, that you're part of the team here. And I hope our accountancy partners that you're working with are going to be able to make the most of this brilliant expertise that you've got. As you said there, you've worked with R&D tax credits, you've worked with various parts of Innovate UK and UK Research and Investment, UKRI, and you've worked with Experian, so you're well-versed in all the things that Capitalise are brilliant at with credit scores and debt funding. So, yeah, no doubt we will get you on a future episode, in the meantime, but enjoy getting to know our businesses and accountants firms, over the next few months.

Finally from me, I'm just going to briefly look ahead to the autumn budget, which is with the new Chancellor, John Healy, on the 28th of October. And of course, the challenge for the government is that they've got to deliver on their political priorities, but also keep those bond markets on side, because long-term borrowing costs are already high. The 30-year gilt yields have recently reached 5.8%. And that means that the fiscal headroom for the budget to be able to give any tax concessions or anything is only about 10 to 15 billion, which has come down quite a lot from the Rachel Reeves days.

So, this matters because if investors lose confidence in the government's ability to manage the public finances, they're going to demand a higher return lending to it, guilt shields rise, pension funds get nervous, government debt becomes more expensive to service, and that's going to weep further into the money that's available for our public services, or indeed tax cuts. And we know on tax cuts that income tax employee national insurance and VAT can't be raised, so, he's got to stick to his manifesto commitments. And speculation is, of course, now around the capital gains taxes, the wealth taxes, the property taxes.

Personally, I don't think he's going to mess with inheritance tax again. I might be eating my words on the 29th of October, the day after, but he's done a lot, the last chancellor, did a lot around inheritance tax, which wasn't very good for the individuals in the economy affected by that. So, I think that might be left, but I think capital gains tax, definitely property taxes, and of course, the business groups are really asking for more reform of the business rates. I know Rachel Reeves tried to do a few things. But then, some economists are just saying, let's have a do-no-harm budget, let's bring confidence back, rather than add further tax rises or regulatory costs. So nothing too extreme they're hoping for, even if that means we don't get tax cuts, or we don't get those policy changes that will really help just yet. So, this might be less about a dramatic giveaway and more about credibility.

So, next time we're together will be in October, after the budget. Paul will be back, Paul Surtees, and discussing with me whether we think the new government has found enough money to deliver on its priorities. Has done anything really innovative themselves, has reassured the bond markets, and at the same time, given our businesses sufficient certainty and confidence to invest and grow. So it's going to be a very interesting few months, and let's look forward, let's find the good news, consider how we can maximise the possibilities of innovation, and we will be back in late October to see how we all fared.

So, thank you very much, Wendy. I'll let you get back to the accountants now, and I'll look forward to hearing about all these innovative businesses that we're supporting.

Wendy Smith: Thank you.