KPMG Private Enterprise Barometer 2025

Sales volumes have been challenged for many months now and Christmas didn’t quite live up to expectations. The KPMG-BRC Retail Sales Monitor shows that over the three months of the ‘golden quarter’ (October-December) volumes were almost flat against the prior year.

There is only limited cheer to be gained from assessing the wider economic outlook. KPMG’s latest UK economic forecast predicts GDP growth of 1.7% in 2025 which is a doubling from the 0.8% seen in 2024. However, the good news largely ends there, with our Chief Economist predicting that inflation will remain elevated above target and that interest rate cuts will only be gradual and cautious.

Meanwhile, consumer sentiment is mixed. A pulse survey we conducted amongst 1,500 businesses in November 2024 showed that nearly three times more people felt secure (57%) than insecure (21%) about their financial situations as 2024 ended. In addition, six in ten said they were able to spend freely when it came to their everyday discretionary spend. However, the results also indicated savvy shopping behaviours would continue, as four in ten said they felt that the economic outlook was worsening. Only a quarter believed it to be improving - casting some uncertainty over how much consumers will loosen the purse strings in 2025.

It is worth remembering, however, that the economic outlook is tinged with uncertainty, especially so in recent times. So, it is promising that our KPE Barometer finds independent retailers in good heart. Notably, their balance sheets are strong, with over half (52%) saying that they plan to finance diversification and expansion through their own internal funds. Strikingly, 40% of retailers say that acquisitions could be a route to growth, which is noticeably higher than the all-sector average of 32%. Could we see a spate of corporate activity in the retail market during 2025?

In terms of their investment priorities, you may not be surprised to hear that technology was the most widely cited area (62%), followed by workforce (55%) and sustainability (51%). Clearly, technology including AI is instrumental to operating a customer-centred, seamless commerce model. There is no doubt that we will see retailers increasingly utilising customer data and AI technology to deliver increased personalisation in 2025.

Investment is also needed to upgrade legacy systems that are becoming obsolescent – this was indicated as a priority by 53% of private retailers, much higher than the all-sector figure of 38%.

Workforce remains critical because even in an age of automation and online purchasing, retailers depend on their staff to deliver service and represent the brand. However, employment has become a complex area, with persistent skills shortages and rising costs. Costs are especially top of mind following the Budget given the increase to employers’ National Insurance contributions. With part-time workers also coming in scope, this is an aspect that could disproportionately affect retailers. Combined with an increase to the National Minimum Wage, and a forthcoming government package to strengthen workers’ rights, running a workforce is set to become harder and more expensive. Half of retailers say they are confident they can recruit the talent they need – but four in ten are planning on reskilling some of their existing workforce and 45% are reviewing their Employee Value Proposition to help with both recruitment and retention.

Sustainability is another priority for retailers, although investment costs shouldn’t be passed onto consumers who might not be willing to pay more. 58% of private retailers say they are planning to prioritise the use of sustainable materials and (63%) are focusing on their supply chains – recognising that a whole of value chain approach is needed to meet sustainability goals.

Concern about the impacts of the Budget are reflected in our survey results. Over a third of respondents (37%) said the measures will impact business profitability, while 31% feared the changes will affect their ability to expand within the UK or internationally.

However, while these results demonstrate a degree of anxiety, they are not as stark as may have been feared. Most respondents were neutral about the impacts rather than negative. This indicates that the Budget’s measures are generally viewed as a bump in the road that private enterprises have the capability to deal with.

Our report takes a look at what the new package of tax measures mean to private enterprise leaders and business owners.