October 2025 Economic Updates

Kirsty McGregor: Hello, and welcome to Capitalise's Economic Update, a roundup of the key economic and market activity, where we aim to translate the headlines and let you know what impact there's going to be on owner-managed businesses in the UK. Thankfully, I have Paul Surtees here to help me understand it all, so Paul, hello.

Paul Surtees: Hey, Kirsty.

Kirsty McGregor: So, in this episode, we're going to cover what is going on at the moment in the current environment for businesses, then we're going to have a look at how the Bank of England is handling things. We'll touch on the upcoming Budget a little bit, the likely implications of that, and then we're going to have a deeper dive into the lending world and discuss some welcome trends which are starting to appear. So, Paul, what are the economic indicators telling us?

Paul Surtees: Well, looking at the two biggies, the big macro ones, GDP and inflation. GDP growth is modest, but it is uneven, so it's not, you know, across all sectors. Inflation is sticky. It's a word that we really didn't want to be talking about probably 12, 24 months ago, and it remains above target. So both of those statements don't feel that great, but if we want to compare, as us humans often do, GDP growth at, sort of, 1.3%, 1.5%, which is where we'll likely end up for the year, puts us second, third, in the G7, behind America and Canada.

We'll probably hear a bit of that in the Budget, about how well we're doing. Doesn't feel that great, I'm not sure I feel any wealthier, but, you know, we're doing better than others. Inflation, while sticky, at 3.8%, still much, much higher than the 2% target, was lower than the market expected, and that's the second month that's hoping. So hopefully we're cresting, and we're gonna tip out the other side, but only time will tell.

Kirsty McGregor: It's taking a long time. So, what other indicators are you looking and seeing out there?

Paul Surtees: For me, the KPMG and REC survey, which comes out, has literally just come out in October, is a great leading indicator. And the reason it is, is because it's looking at employment. Unfortunately, the news isn't wonderful.

So, we've seen further declines in both temporary and permanent job confidence from recruiters. There's actually regional disparity, and in something I've not seen before, the North and South are both climbing, okay, so that's good news. However, London and the Midlands are falling. So that bit in the middle is not doing so well.

There's also a sharp rise in the availability of candidates, which kind of implies that people are spending much longer times before they get another job. And of course, that means that, unsurprisingly, that the number of vacancies is also in decline. So, fewer vacancies, higher availability. And as a consequence of that, wage pressures are declining, so wages haven't really grown that much over the last few months. And that's good for inflation, it's not good for us employees.

Kirsty McGregor: Lowest, vacancies in a long time, I think, and partly because of the Budget, I think, but we'll come on to that. Now, look, Capitalise sees thousands of businesses each month, so what are you hearing? What are they telling us?

Paul Surtees: I think that, possibly the last Budget is biting. You know, the April 6th employer NICs are, you know, are starting to really be felt, as is the national minimum wage. And, you know, we can really see that, whether it's in the press or the businesses that we talk to, in hospitality, retail, and care, where, they're really going to be in that minimum wage space.

And I think you can see that kind of parallel, also, in the fact that Pizza Hut has fallen into administration in October. The quality isn't there for them to charge much higher prices, but it's no longer cheap, and it's that middle piece that's really getting squeezed. People just can't afford that piece, national wages, minimum going up.

The NICs are going up, they just can't afford to maintain their business going forward, and obviously it's a huge brand. It's not a brand of fantastic pizza, but it's a brand that we will lose from the high street.

Kirsty McGregor: And food prices going up as well, and energy costs are not all great. So, how does all this translate into lending?

Paul Surtees: Well, at the beginning of the year, I think we were talking, Kirsty, about some green shoots. We're starting to see some growth funding, businesses feeling a little bit more hopeful. Maybe that kind of Autumn Budget, and, you know, what that felt like had started to kind of be in the rearview mirror, and people started to think, it's the beginning of the year, and I've got my plans, and we're gonna invest. But at the moment, we are seeing much more defensive funding,

What does that mean? About 25% is growth funding. About 50-55% is cash flow gap, and that includes HMRC debts, so, you know, potentially HMRC not giving out the time to pay quite as freely as they were. Perhaps they're actually chasing quite hard on those debts, which are still at relatively high levels. And we're also seeing quite a lot of refinancing, out of other loans to manifest affordability.

So that brings me on to a cautionary tale, I think, which is that we are seeing a lot of businesses coming in with loans being stacked. So not one loan, two, three, four loans all coming in with different lenders, and the lenders tend to be tier 1, and then tier 2, and then a couple of tier 3s, and maybe a tier 4. And ultimately, that is just robbing the business of affordability.

I think there is a worrying move in SME brokering at the moment towards this type of behavior, loan stacking. We don't like it, we don't do it, we absolutely campaign against it. So if a broker is telling you to do that and not getting permission from lenders, then by all means, stop the application.

Obviously, you can come and speak to us if you prefer, but just stop it, because it could lead to a negative outcome, and then you'll be back to us for a refinancing in the future.

Kirsty McGregor: Because, effectively, you're asking different lenders to credit search at the same time, so they don't see the other lenders' activity on your credit profile, and they don't offer without knowing that. That's what you mean.

Paul Surtees: And importantly, at that same time, two lenders on the same day going for applications, you don't see the interest payments coming out, and therefore there's more affordability. If you put them both in in that first month before affordability gets impacted, which you can see in open banking and banking statements. The second lender wouldn't have made that loan.

Kirsty McGregor: Yeah. Okay, so, look, what's to come? Let's talk about the Budget, and let's talk about the Bank of England.

Paul Surtees: So look, Budget first, then, I think Rachel from Accounts really has to try and remove the uncertainty, because the threat of these tax rises, I think, has really sucked the oxygen out of the innovators. And there's not the bleeding edge of innovation. It is just the businesses that want to grow and invest and spend the money. It's that uncertainty, and we've talked about it many times before. We've got to try and remove that and actually Rishi Sunak has a view on that. The leaks are emerging, you know, whether it's, NICs for partnerships, et cetera, and we will see more of these over the weeks and, well, not months now, over the weeks before the Budget.

HMT has 3 options. They can either cut spending, they can hike taxes, or they can borrow more. Obviously, what we tend to see is a combination of all of the above. Obviously, the last one was a pretty big bazooka event. The markets won't let us borrow anymore. We're already spending 100 billion per annum in interest, which is a huge number.

From a tax hike perspective, we're already the fourth highest in the G20 in aggregate rates, so that feels like that's obviously quite tight.

Sunak put a great editorial out into the Times. He was actually quite positive about what the bond vigilantes are thinking about, you know, the borrowing, and, you know, had a number of positives in terms of what the Chancellor is doing, but ultimately, from a Conservative perspective, was advocating for a cut in spending.

So, the Bank of England, we've got two more meetings this year, November and December coming around quite quickly, when we're making our forecast at the beginning of the year for 1% of cuts.

The markets are implying that there's another quarter percent in one of those two. If I were to guess, it's probably December, because I want to just try and get a bit more time. But the markets are quite convinced that we'll see that.

If that happens, it will mean that we'll get the 1% across the year that we forecast at the beginning of the year. But the market's also predicting, 1% from here to the end of 2026, so somewhere 3.25, 3%, something of that ilk, is what the market's currently forecasting. So more gradual tax rate cuts next year to come, which should take a little bit of the burden off and make for cheaper borrowing.

Kirsty McGregor: I expect Miss Reeves will be hoping it's an interest rate cut in November, prior to her Budget, and I think she's pushed this Budget so late this year that it is causing paralysis for business owners making decisions. I understand it's awkward for them, and yet she's hoping it's because the, you know, the markets will be more positive, but we will.

Paul Surtees: However, the Bank of England may want to keep it up their sleeve to see what the impacts are on the market.

Kirsty McGregor: Exactly.

Paul Surtees: As a betting man, hence why I think it's December.

Kirsty McGregor: Okay, last question then. Any curveballs? What else is going on out there?

Paul Surtees: Well, look, there's always, top of the list is the geopolitical risk. Putin seems to be getting bolder with every month. Obviously these things kind of escalate, hopefully not, not to an extent, where this really goes into a, you know, a terrible situation, more so than it already is. But that's obviously number one. Number two is that,

Central bankers around the world are talking about private credit. The Bank of England is keeping a close eye.

What do I mean by private credit? It's effectively lending that's done outside of banks, credit funds, sovereign wealth, etc, putting money into large businesses and businesses that they think can sustain borrowing that the banks wouldn't necessarily have done. They'll put the money into alternative lenders, for instance.

We saw two large failures in the last few weeks. One First Brands Group, one Tricolor, both in the US. There's already hundreds of millions of losses that have been written off, you know, from the JP Morgans and the Bank First and so on.

Kirsty McGregor: HSBC as well.

Paul Surtees: HSBC, Barclays, etc.

Kirsty McGregor: Yep.

Paul Surtees: So, lots of money written off already, but the liabilities are actually running from $11 to $60 billion, and obviously we've got to wait for the book to run off before we start to see, you know, and be sold, before we'd see the true extent of that.

Is it the canary in the coal mine? Is it like 2008, where, you know, a couple of small events, still big numbers, but small events in the grand scheme, actually constitute many more rolling over?

Let's hope not. Let's hope that keeping a close eye is, you know, means that we're on top of it this time, and we've learned some lessons. But just bear in mind, because these are the things that might suddenly come very quickly, that might mean that you need to spin on a dial as a business or an advisor.

So, as always, with that in mind, make sure you've always got your three business plans in place. Financial resilience, you're thinking about what happens in a recession, in your base case, and obviously in a growth. You've got to build financial resilience. But crucially, your competitors and people in your space are going to be pulling back, so there's always going to be opportunities to look for those opportunities, and make sure you try and manifest as many as you can.

Kirsty McGregor: Absolutely, yeah. So, the Budget is coming up, and we will be back to discuss that, hopefully with a guest joining us to analyse some of the things that are going on. We'll leave the tax issues to the accountants to talk about, and we'll come in and talk about the lending and the markets and the usual macroeconomic things. So, Paul, I will see you on the other side of the Budget.

Paul Surtees: See you then. Thanks, Kirsty.