Economic Roundup October 2026 - Autumn Budget edition

Kirsty McGregor: Hello, welcome everybody! I’m Kirsty McGregor, Accountant in Residence at Capitalise and founder of the Corporate Finance Network, and I’m also joined today by Paul Surtees, co-founder and CEO of Capitalise. Hello, Paul!

Paul Surtees: Hello, Kirsty.

Kirsty McGregor: Yesterday, the Chancellor delivered the 2026 Autumn Budget, and as usual, I’m sure there’s lots of commentary. Your inbox is going to be flooded with information about all the tax measures and what businesses might have to pay. But today, we are going to look at something slightly different: what do you need to know to get ahead?

The Budget doesn’t operate in isolation in the House of Commons. Financial markets respond to it, and this ultimately affects how much businesses pay to borrow, how much their customers are willing and able to spend, and whether companies feel confident enough to invest and grow.

So today, we’re going to lead with education, because we know our audience is a bright bunch, and we’re not here to preach or restate the obvious, but to try and give you a bit more information to help you understand the longer-term picture.

If you want to be successful and thrive, rather than just cling on, which it might feel like some of you are doing at the moment, how should you angle your strategies to tackle the bigger problems? So, Paul, let’s start with the big question. Has this Budget made the outlook for UK businesses better or worse?

Paul Surtees: Can I say neither? The Budget, obviously, is addressed to Parliament, but I think yesterday she really wrote it for the bond market. And the bond market, the bond vigilantes, they read it, they looked at it, they said “noted”, and they went back to their late lunch.

The forecasts underneath are a little more relaxed. Growth is cut, unfortunately, inflation is up, borrowing is up. That’s sounding like the party’s in there: up, up, up in the House. But I don’t see a new crisis, but equally, I don’t see a new rescue.

Kirsty McGregor: We often hear commentators saying that the financial markets have given the Budget a thumbs up or thumbs down. What are they looking at, and what have we seen this time?

Paul Surtees: If we look at the gilt market, the 10-year moved about 3 to 5 basis points. What’s a basis point? It’s one hundredth of a percent, so it’s not huge.

So the bond market’s version of a standing ovation was given yesterday, but if you blinked, you missed it, Kirsty, because it wasn’t a huge move. And as we will probably explore, that’s a good thing. Sterling was pretty muted, around 1.33, and the FTSE 100, but more importantly the 250, which is more domestically focused, didn’t move so much. So, quite a muted move, but I think that’s a good thing.

Kirsty McGregor: So a fairly uneventful market reaction is actually good news.

Paul Surtees: Well, if you go back to 2022 and you think about the kamikaze budget, the market replied in a very different way. There was a pension fund emergency, the papers, and I’m showing my age here, were red for seven weeks, and confidence was absolutely crushed. So, in the context of yesterday, a short reply measured in minutes is much, much better for the market.

Kirsty McGregor: So why should small business owners care about these government bonds and what happens to them?

Paul Surtees: That is the price that the government has to pay in order to borrow to fund the net expenses they have when they’re not taking in enough tax receipts. In reality, that price is the market’s view of the credit risk of the UK government.

Of course, that price that the government has to pay is better than a bank’s credit rating, because the liquidity of the government is always going to be so much better. However, that’s where the bank starts. So, if the government is here, and the bank number is up here, this is where your lending is going to get applied, and that applies to your mortgage or SME borrowing. It’s where the bank adds its margin, and then subsequently its move.

And that’s why at Capitalise, we think that looking at your credit score as a small business is the first part in getting into better lending.

Kirsty McGregor: Okay. Let’s turn to inflation, because this is something that most businesses are still grappling with. We’d hoped inflation would settle down, but the OBR has now revised the forecast upwards. What has happened?

Paul Surtees: Do you ever get that feeling, Kirsty, that returning to target is always just two years away? As you say, the OBR said that inflation is peaking around 3.8% next year and returning to target in 2028. So there’s that horrible feeling of the can being pushed down the road. It’s the Treasury’s version of “I’m just around the corner, I’ll be there in five minutes.”

But of course, the energy that we’re paying at home and in our businesses, the freight, the materials, the costs that we put into our business, are already here, and our customers have not necessarily agreed to pay for that kind of increase in prices. So what’s the message? I think there’s a theme developing here, which is: watch margins, not sales.

Kirsty McGregor: And for businesses, inflation doesn’t always feel evenly distributed, does it?

Paul Surtees: No, and I think that is where the real difficulty lies. Not all businesses have the opportunity to pass on the cost. They don’t have the pricing power to pass those increases through.

If you go and ask a publican about the cost of a pint, it is the most honest inflation chart in Britain. If you think back to before COVID, food costs since then are up 40%. Employer NI is up 43% on a national minimum wage of about £20,000. Minimum wages are up 48%, electricity is up 130%.

We all feel those things, but the cost of a pint is up just 35%. So every cost behind the bar just hasn’t risen at the same rate that they can put the pints out. And that’s not a business model. Turnover looks okay, but margins have gone, and that is why we keep seeing these headlines that pubs are closing. It’s something like one to two pubs closing every single day.

There’s not much a publican can do. They can’t pass those prices on, and that’s why there’s such a big campaign to try and get measures and reductions on VAT, which is what a lot of European countries actually do. They’ve got subsidies at much lower rates, like 8% and 10%, and it’s the only lever they’ve got left, so that we don’t have to pay £8 a pint.

Kirsty McGregor: So, as you’ve said, businesses should be focusing more on margins and cash flow than headline sales growth.

Paul Surtees: Yeah, for sure. Often when I’m speaking at conferences on this point about inflation, I’ll ask for a show of hands as to who feels richer. Obviously, there’s no smug individual who sticks his hand up, being super brave, but equally, you don’t have a whole room sitting there with big smiles on their faces. We’re all feeling this squeeze.

And that applies to what we’re spending as consumers, and that goes into businesses on the street, and so forth. So I’d really encourage businesses to revisit their gross margin assumptions. Definitely look at working capital requirements; that’s a theme we’re always talking about here at Capitalise. And of course, review your pricing strategies.

Not all pricing strategies have to be a flat 10% up. Some people will be willing to pay for different things in different quantums, so try and think through what you can pass through. Not that I want to experience a higher inflation environment, which is what that will generate. But the key question is whether your forecasts as a business remain realistic in this higher inflation environment, where margins may be squeezing.

Kirsty McGregor: Okay, so that brings us to interest rates. Earlier this year, we were all hoping, and you were saying, that borrowing costs would gradually come down. What’s the Budget done to that expectation?

Paul Surtees: I think I’ve been a little bit less hawkish than the market over the last couple of years. Last year, I was fortunate to call the rate destination at the end of the year correctly.

Rates, sadly, are not going to give any relief here. The market is very confident, with a 90% chance of a rate hike on 5 November, Bonfire Night. If you look at short-dated SONIA, which is how we can see what the market’s predicting, they’re looking at about 4.75% in the second half of 2027.

But my view, for what it’s worth, continuing to be less hawkish, or thinking that rates are not going to go up: I’m very confident that we’re going to get a hike in November. I think we might get one more throughout 2027, but I’m in that “hold for longer at this higher level” camp, rather than rates continuing to rise.

The reason is that whilst petrol and diesel prices may still be really high, that increase will drop out of the index, and so inflation will start to come down. That’s just a mechanical reference point. We’ll still feel the high prices, but it will optically look better. And wage inflation is actually holding quite steady, which was a problem a couple of years back.

So, with that in mind, I think we’re all getting squeezed, and I think that is actually doing the job of higher rates, and so I’m going against the market.

Kirsty McGregor: Okay. For businesses that want to get ahead, then, what practically can they do?

Paul Surtees: I think there are three considerations. Lots of businesses have variable-rate borrowing, whether it’s on credit cards or overdrafts. You need to understand what’s happening to your cash flow if those rates go higher. If I’m wrong and rates do move higher, those variable rates are going to move with you.

Lots of loans are going to be refinanced. We’re coming out of the end of the COVID loans, those five-year periods. Lots of businesses are extending those into 10 years through the British Business Bank and some of the schemes that have been made available, but a lot of those loans will be coming off, and they were super cheap. So don’t expect cheaper rates on that refinancing. Make sure your credit score is good now. Work on it 12 months in advance.

And then finally, investment decisions always need to be assessed in terms of what the returns are going to be, but make sure they are assessed against realistic funding costs, because lots of businesses will be looking for leverage to acquire opportunistically. And on that point, well-managed businesses will still find opportunities.

Kirsty McGregor: Yeah, absolutely, and thank goodness we’ve got some savvy entrepreneurs in this country who’ll go and find them. I just want to revisit something we mentioned at the beginning. The 2022 mini-budget under Liz Truss was such a shock to the financial markets, and it had an enormous influence on government policy. Are there any similarities this time, or is it something we should be worried about?

Paul Surtees: I think, in many respects, this year is the sequel to 2022 that nobody asked for. We’ve got an energy crisis from a new war. We’ve already had a second Prime Minister; we had three back in 2022. Fortunately, we’ve had no lettuce.

Yesterday was a Budget that everybody was really wary of, because often with a new government, and it’s not quite a new government, but it’s a new cabinet and a new Prime Minister, they want to come in and make big changes when they’ve got the most political capital. So people were really wary of that.

Truss gave us a pound that dived, a pension industry that wobbled, as I mentioned, and a Bank of England intervention. It was a really dicey seven weeks for the UK. Fortunately, as I said, yesterday passed without the market heaping more pressure on us. So it’s global events, more than what happened yesterday.

Kirsty McGregor: Great, so it could have been worse. Let’s finish with some practical advice. We’ve said it’s about businesses focusing on whether they’re making the right strategic decisions. Don’t just watch the numbers, follow the money, because productivity and profits will continue to be eroded if you stand still.

Look for ways in which you can access working capital through better credit scores or funding and tax reliefs, and especially look to the regional devolved funds. Whether businesses are considering investment or bigger acquisitions, succession and exit planning and eventual disposal, the wider economic environment is going to affect the options available to all businesses. So, Paul, final thoughts?

Paul Surtees: Well, the markets didn’t panic, which is great; that’s super reassuring. It could have been much worse, as we suggested. I think it’s clear that the economic forecast for 2027 suggests it’s going to be a challenging year. I can’t wait until we say it’s going to be a fantastic year, and it’s that kicking the can down the road that we’ve mentioned.

But there will always be, in any year, good or bad, winners and losers. It could be sector-defined, and we hope that there are more winners and we keep driving the economy forward.

Kirsty McGregor: Brilliant. Thank you for joining me, Paul. I hope everybody’s enjoyed that and learned something along the way, and that it’s given you renewed motivation to go and develop new strategies.

We’ll continue to monitor economic developments. We share a webinar on the macroeconomic environment every other month, so look out for that and keep an eye on our socials and emails. And let’s hope we get to that year where we say it’s going to be great next year!

Paul Surtees: We will get there, we will get there.

Kirsty McGregor: Thank you, Paul.