With inflation cooling, interest rates nearing their peak, and a new government in place, the UK economy is showing signs of cautious recovery. However, not all sectors are moving in the same direction. Some industries are bouncing back strongly, while others continue to lag. Here is a snapshot of the three best-performing and three worst-performing sectors so far this year.

Top three performing sectors

Private services – especially consumer-facing

The private services sector has delivered the strongest performance, with notable gains in hospitality, leisure, and consumer-focused activities. This part of the economy has benefited from improving confidence and a pick-up in discretionary spending. Services output has grown at its fastest pace in nearly a year, suggesting that consumers, though still price-conscious, are returning to restaurants, entertainment, and travel in larger numbers.

House-building

While the wider construction sector remains mixed, residential development has seen a modest recovery. Activity in house-building improved for the first time in over six months, supported by slightly lower materials costs and a build-up of demand from earlier in the year. This growth is still fragile, but it reflects cautious optimism among developers responding to stabilising interest rates and stronger mortgage approvals.

Financial, legal, and technology services

Professional services continue to be a bright spot, helped by steady export demand and strong global positioning. Financial and legal firms remain central to the UK’s services-driven economy, and the technology sector continues to expand its share of GDP. The UK’s position as a hub for fintech, consulting, and digital services remains secure, supporting steady job growth and investment in these areas.

Bottom three performing sectors

Commercial construction

In contrast to the improvement in house-building, commercial construction is stuck in reverse. Activity has declined sharply, with businesses scaling back investment in office, retail, and large-scale commercial projects. Developers remain wary of long-term occupancy trends and face higher borrowing costs. As a result, fewer commercial projects are breaking ground, and future pipelines look lean.

Manufacturing

The UK manufacturing sector continues to struggle with low output, weak demand, and elevated input costs. Although some sub-sectors, such as food processing, remain resilient, others, including automotive and textiles, are experiencing sharp contractions. Global supply chain issues and subdued export orders have dampened confidence, and the sector has yet to regain the momentum it had pre-2020.

Hiring and employment services

While not a traditional sector in itself, employment and recruitment activity gives a strong signal of economic health. Unfortunately, hiring confidence is down significantly, with many employers delaying recruitment. This is partly due to concerns over demand, and partly linked to rising employment costs, such as the increased rate of employer National Insurance contributions. As a result, recruitment agencies and HR services are facing declining revenues and job openings are down across many industries.

Conclusion

The UK economy remains a mixed bag. Private and professional services are driving forward, helped by improved consumer activity and export performance. However, manufacturing and commercial property are still facing headwinds, and the slowdown in hiring suggests that employers are not yet convinced the recovery is sustainable.

Policymakers will be watching closely. Continued weakness in construction and manufacturing could weigh on overall growth, even as parts of the economy start to accelerate again. The question now is whether confidence spreads, or whether the divide between sectors continues to widen.

With the public finances showing structural cracks, thanks to an estimated £20 billion to £30 billion hole in next year’s budget, Chancellor Rachel Reeves is facing an unenviable challenge. The Office for Budget Responsibility has flagged rising debt, pension obligations, and hefty costs associated with the climate transition as daunting risks to Britain’s fiscal health. Markets are nervous, gilt yields are creeping up, and voters are bracing for some unwelcome news.

And what is the quick fix? Tax rises. With Labour pledging not to raise headline rates of income tax, VAT, or National Insurance on working families, the palette remains muted, but a few remaining options could still sting.

Stealth tax via fiscal drag

Freezing income tax and National Insurance thresholds in real terms is a favourite trick. Each year, pay rises push more people into higher bands. Extending the freeze beyond 2028 could raise £9 billion to £10 billion annually by 2029 to 2030. But pensioners on modest incomes may also be hit. Freezing the personal allowance means many could unexpectedly cross the £12,570 threshold, triggering a stealth income tax rise.

Pension and ISA reforms

The Chancellor might revive plans to cap the tax-free lump sum or reduce tax reliefs for higher earners. That could plug a gap of up to £15 billion a year. There may also be changes to ISA limits, a shift in how capital gains are taxed, or the introduction of a flat 30% pension relief model. None of these changes is likely to be popular, particularly among older voters.

Wealth taxes, levies and property tweaks

Pressure is growing from within Labour to increase taxes on the wealthy. Some have floated a wealth tax on assets over £6 million or £7 million, potentially generating £10 billion or more each year. While Reeves has described such measures as bold, that boldness might clash with fiscal rules and the need to reassure the markets.

There is also talk of adjusting council tax bands to better reflect property values or introducing a health or defence levy. Freezing the inheritance tax threshold, possibly with tighter reliefs on business or agricultural property, could also return to the agenda.

Business contributions

Although Labour’s manifesto ruled out raising corporation tax, there may still be scope to increase employer National Insurance contributions or apply targeted levies on banks and insurers. These moves raise revenue without directly affecting household take-home pay, but they still have broader economic consequences.

Why it matters-and the tension ahead

All of these potential measures rest on a knife edge between political risk and economic necessity. Each tax change could affect Labour’s public support, business confidence, or voter trust. The Office for Budget Responsibility has highlighted the limited fiscal headroom available, and investors are likely to expect at least £10 billion in new measures to maintain confidence.

Proposed changes to Inheritance Tax (IHT) are causing alarm in the UK farming community. If introduced as expected from April 2026, new rules could see agricultural estates over £1 million subject to 20% IHT, even when the land or business is still being farmed by the next generation.

This potential shift in the tax regime has triggered protests and demonstrations across the UK countryside. Farming families are worried that, without the current reliefs in place, it will become much harder to pass on farms without either selling off land or taking on significant debt.

Under the current rules, Agricultural Property Relief (APR) and Business Property Relief (BPR) can reduce the taxable value of a farming estate by up to 100%. This allows family farms to be passed down with minimal or no IHT liability, provided certain conditions are met.

The proposed changes would likely involve the reduction or removal of these reliefs for some types of land or property, particularly where the farm includes diversified business activity, such as holiday lets or renewable energy generation. There is also speculation that unused land, or land leased out under long-term arrangements, may no longer qualify.

For farmers and rural business owners, the implications are significant:

• Land valuations are high, especially in the South and East of England. Even small farms can exceed £1 million in value, making them vulnerable to the new rules.
• Succession planning becomes harder. With a 20% tax charge on top of probate and legal costs, the younger generation may find it financially unviable to continue the family business.
• Borrowing to pay tax could increase pressure on margins, particularly in years with poor yields or falling commodity prices.

So, what can be done?

The key is to start planning early. Succession should be reviewed well before April 2026. This might include:

• Restructuring the ownership of the land or business
• Reviewing whether assets currently qualify for relief
• Transferring ownership gradually during lifetime
• Making use of trusts or lifetime gifting strategies where appropriate

Every farm is different, and tax planning in the agricultural sector requires a bespoke approach. The important thing is not to assume that the current rules will remain in place. The political and fiscal climate is shifting, and reliefs that have long been taken for granted may no longer apply.

If you are involved in farming, rural business, or own land used for agriculture, we strongly recommend a conversation about your current IHT position. Early advice can prevent future problems and help protect the legacy you plan to pass on.

The UK economy is showing signs of fatigue. Figures released at the end of June confirm that economic growth slowed to 0.7% in the first quarter of 2025. For small business owners, this is more than just a headline as it signals a shift in consumer behaviour, business confidence, and access to finance.

The Office for National Statistics (ONS) reports that household real incomes are falling. Disposable income is down by 1%, and personal saving rates are at their lowest since 2020. In plain terms, consumers have less money in their pockets. For businesses in retail, hospitality, or services, this may already be translating into weaker sales and a rise in price sensitivity.

At the same time, public borrowing is creeping up. Government figures show a rise in borrowing in the early months of the 2025-26 tax year, adding to fiscal pressure on the new government. With several welfare policy U-turns removing planned savings, the Chancellor faces a difficult Autumn Budget. Tax rises, cuts to investment allowances, or delays to business incentives are all possible outcomes.

The result is a more cautious economic mood. Many small business owners are already reporting tighter trading conditions and lengthening payment cycles. For those relying on external finance, the outlook is becoming more complex. Interest rates have remained relatively high, and lenders are applying stricter affordability tests – especially in sectors deemed higher risk.

What should business owners be doing now?

1. Revisit your cashflow forecasts – Account for lower revenue assumptions, changes in repayment terms, and higher finance costs. If possible, build in contingency funds for slower months.
2. Review your cost base  – Rising National Insurance contributions and minimum wage increases from April 2025 may already be having an impact. Consider whether savings can be made without affecting quality or customer service.
3. Prepare early for borrowing – If you are planning to seek finance or refinance existing lending, start the process sooner. Banks and alternative lenders will want to see up-to-date management accounts and evidence of strong financial control.
4. Talk to us – If you are concerned about profit margins, tax bills, or capital expenditure plans, now is the time to reassess. Small changes in tax planning or investment timing can make a difference.

Although growth is expected to return later in the year, the second half of 2025 is likely to be bumpy. In uncertain times, the businesses that perform best are usually those that plan ahead, communicate clearly, and keep a close eye on the numbers.

From 2025, Companies House is rolling out new identity verification requirements for directors, people with significant control (PSCs), and anyone forming or managing a UK company. These changes form part of the Economic Crime and Corporate Transparency Act and are designed to reduce fraud and increase confidence in UK companies.

If you are involved in running a business, you may soon need to prove your identity either directly through Companies House or via a registered agent such as your accountant. Without completing verification, you will not be allowed to register a company or take up a new role as a director or PSC.

These rules apply to:

• Company directors (existing and new)
• Individuals with significant control (usually shareholders with 25% or more of shares or voting rights)
• Company formation agents
• Anyone filing information at Companies House on behalf of a business

The new system is already partially in place. Since April 2025, authorised agents can verify identities on behalf of their clients, but from a future date still to be announced, Companies House will require all key company officers to comply before filings will be accepted.

For business owners, this means a few practical actions:

• Ensure all directors and PSCs have current and valid photo ID.
• Decide whether you want to complete ID checks directly or use an authorised agent.
• Check that your company’s records at Companies House are up to date.

We expect enforcement and deadlines to follow later in the year, so it is wise to prepare in advance. If you are uncertain how these changes affect you, or how best to carry out the verification, we are happy to help.