Rising costs and shrinkflation push two in five UK companies to slash budgets
UK businesses are making strategic pivots amid economic pressures that extend well beyond traditional cost-cutting measures.
A recent Zoho Digital Health Study reveals that 41% of UK companies are trimming budgets to counteract the dual forces of shrinkflation and rising operational expenses. With inflation at 3.9% and a rapidly evolving economic landscape, the financial leaders at these firms are forced to rethink how they allocate resources and structure their cost bases.
The survey uncovers a complex scenario where 56% of respondents have witnessed rising costs in multiple areas of their business. The growing pressure has led 34% of companies to internalize services that were previously outsourced—a clear sign that decision-makers are no longer content with simply absorbing external cost fluctuations.
This trend, alongside a 27% reduction in spending on artificial intelligence initiatives in 2024, underscores a cautious approach to investment during uncertain times.
Despite these challenges, there remains a notable sense of optimism among UK business leaders. A robust 85% of respondents believe that conditions will improve over the next year, a figure that outpaces the broader European sentiment of 80%.
This resilience may stem from the notion that even in the face of a ‘permacrisis,’ prudent fiscal management and a targeted focus on technology can pave the way for recovery and future growth.
Industry voices emphasize the need for agility and foresight. Sachin Agrawal, Managing Director, Zoho UK, remarked, “The UK economy has faced significant challenges in recent years, so quite rightly, many business leaders are focusing on future-proofing their operations amid an ongoing permacrisis which continues to cause disruption.”
Further reinforcing the call for proactive measures, Agrawal continued, “To create the best chance of success, businesses must closely examine their digital transformation efforts to ensure they have the tools to weather any storm. It is encouraging to see a shift in priorities toward technology as businesses strive for greater resilience. This forms part of a wider drive to deliver greater customer value in attraction and retention strategies. Businesses should continue to develop long-term customer partnerships offering increased value, especially during periods of economic uncertainty.”
Agrawal added, “By adopting the right digital tools, supported by a strong leadership style, a customer-focused culture, and an engaged workforce, businesses can boost flexibility, adaptability, and agility for long-term success.”
For CFOs steering their companies through these turbulent times, the study is a clarion call to reexamine financial strategies, invest in digital innovations selectively, and maintain an unwavering focus on sustainable customer relationships, ensuring that their organizations are not only surviving but thriving in an era of profound uncertainty.