As we head towards the end of 2024, it has been a challenging year for businesses.

As we head towards the end of 2024, it has been a challenging year for businesses. Although inflation and interest rates have fallen, the economy remains flat, with cost bases high. Consumer confidence is fragile, with cost-of-living pressures still squeezing discretionary spend. Geopolitical tensions and regional conflicts are also complicating operations – especially for those businesses with manufacturing or service centres in eastern Europe, where the war in Ukraine is creating ongoing supply chain challenges.

2024 was also a year of exceptional levels of political change, with more elections around the world than any other year in living memory. We have a new government here in the UK and Donald Trump is set to return to the White House. The government’s Budget has become a big talking point (more on that shortly). Businesses loathe uncertainty because that hinders decision making – and there is plenty of uncertainty in the air as electoral and policy changes shake out and we move towards 2025. The conventional wisdom is that businesses are beset by growing levels of anxiety about where we may be headed.

But did the UK’s private enterprises not get the negativity memo? At KPMG, we have recently conducted research (carried out after the Budget had been delivered) amongst 1,500 private business owners and executives, spread across sectors and UK regions – and the results paint an extraordinarily bullish picture. We will be publishing the in-depth results in our inaugural KPMG Private Enterprise Barometer in the New Year, but to give a handful of key headlines:

• 92% of private enterprise leaders are confident about their business’ growth prospects over the next year; 59% describe themselves as very confident.
• Over nine in ten are planning on diversifying and expanding their businesses – by creating new service lines or products, entering new markets (including overseas) or via acquisition.
• Businesses are financially confident – over half expect to finance their diversification from their own balance sheets. Amongst those looking for funding, private equity is the main expected route, significantly ahead of bank debt. But over a third are considering the capital markets route (such as an IPO) – indicating a market boom could be around the corner.
• Technology (such as gen AI) tops the investment priority list by a clear margin, followed by workforce & skills.

These really are remarkable findings. They are a reminder of the dynamism, entrepreneurial mindset and ambition of the private businesses that constitute the backbone of corporate Britain up and down the country. They should give us all a lift because confidence breeds confidence and growth has a multiplier effect across value chains and networks.

What makes these results even more encouraging is that private business leaders are not naïve – they are fully aware of the headwinds and acknowledge that there are challenges to navigate. The Budget is a case in point. There has been much written about the likely impacts of increases to employer National Insurance contributions and the possible effects in dampening recruitment, wages and growth. Increases to the National Minimum Wage are also a significant issue, driving up employment costs with a particular effect on sectors that employ large numbers of lower paid staff such as retail, leisure and hospitality.

We see these issues in our research, with over a third of leaders saying that the Budget could have an impact on profitability and over three in ten saying it could affect their opportunities to expand or invest for growth.

However, what I think we can take from our survey results is that private enterprise leaders see the Budget not as an unswervable roadblock but rather a bump in the road that they have the shock absorbers to deal with. They are already looking beyond it and their ambition remains intact.
 

If 2024 was a year of change and challenge, I believe that 2025 will be a year of execution for the private enterprise sector. At KPMG, talking to private business leaders we see huge levels of pent-up ambition, and 2025 could be the year that this demand turns into action. There are high levels of private equity funding waiting to be deployed. Banks have begun to be more active in their business lending again. There has also been a strong pipeline of potential M&A activity for at least two years now – the signs are that we could see actual movement on this pipeline next year, with a growing number of transactions.

Technology will be a priority focus for investment, to improve the customer experience, drive increased operational efficiency and allow employees to become more productive in the areas of highest return. After the initial hype and excitement around gen AI, there was something of a lull as businesses asked themselves how these tools could actually be deployed. In 2025, I expect to see this turning into a very considered execution of specific use cases, as proofs of concept are actualised around key processes for the running of the business.

This will help businesses strengthen their workforce and skills propositions, utilising people’s talents to their best effect. We also see a strong recognition in our survey of the importance of sustainability and the ESG agenda – which is another important factor in the recruitment and retention of talent. Not only that, there is a real commercial return from ESG as it can improve access to funding and increase enterprise value and deal multipliers.

It won’t be a one-way street towards growth and prosperity. There are significant and real challenges to be overcome. Private business leaders are concerned, for example, about taxation especially where corporate and personal tax intersect – such as inheritance tax and capital gains. The regulatory and compliance demands on businesses are also rising, and this is an area that private enterprises must give increasing attention to.

But overall, it’s a message of resilience, opportunity, growth ambition and entrepreneurial drive. It’s often said that SMEs are the engine of the UK economy – if that’s the case, the engine is purring and is set to move up through the gears in 2025.