British businesses continue to rely largely on the UK as a base for growth, even as rising costs and economic uncertainty weigh on margins, according to new research from Barclays.
The bank’s latest Business Prosperity Index, which analyzes anonymized data from around one million customers as well as a survey of 1,000 business leaders, shows that a two-speed economy will emerge by the end of 2025. Larger companies are driving long-term borrowing and investing, while smaller companies are turning to short-term liquidity to manage tighter margins.
Despite ongoing challenges, 58 percent of business leaders said the UK remains the best place to start, scale and grow a business. A similar proportion, 57 per cent, believe the UK will become a more attractive location for listing, with London cited as a preferred market for a future IPO by 46 per cent of respondents.
Almost all companies surveyed (93 percent) reported higher trading costs last year, driven primarily by energy (85 percent), labor costs (80 percent) and supply chain costs (78 percent).
In response, 80 percent have passed on some of these increases to customers, with companies passing on an average of 30 percent of the higher costs. Another 65 percent assume that prices will rise again this year.
Energy pressure remains particularly high: 34 percent of companies are reducing their consumption to compensate for rising bills. More than a third (37 percent) believe reducing operating costs is the most effective way to unlock investment in 2026.
Barclays client data shows cash inflows fell 3.4 percent year-on-year in the fourth quarter, suggesting subdued spending. However, borrowing patterns vary greatly depending on the size of the company.
Larger companies increased long-term borrowing by 8.7 percent year-on-year, suggesting confidence in future expansion. In contrast, smaller firms reduced longer-term lending while increasing overdraft use by 2.5 percent, reflecting short-term cash flow pressures.
Two-thirds of large companies and more than half of medium-sized companies believe the current economic situation supports long-term growth, compared to just 12 percent of small companies.
Confidence in the prospects of individual companies remains comparatively high: 86 percent of small businesses are optimistic about the coming year, while this figure drops to 68 percent for micro businesses.
Against this backdrop, Barclays has launched its Business Prosperity Fund 2026, providing £22 billion in loans to support new investment and refinancing among business and corporate customers.
Abdul Qureshi, managing director of Barclays Business Banking, said smaller businesses were understandably cautious but still saw opportunities. “Clearly more needs to be done to convert confidence into tangible progress,” he said.
Matt Hammerstein, chief executive of Barclays UK Corporate Bank, added: “Even at a time of cost pressures, businesses are showing clear confidence in the UK as a place to grow. Our job is to help bridge the gap between ambition and action.”
The results suggest that while the macroeconomic situation remains uncertain, business sentiment towards the UK’s long-term prospects remains stable – with access to capital, market reputation and investor depth cited as key benefits.
The challenge now for policymakers and lenders is to ensure that the resilience of larger companies leads to new dynamism among smaller companies, where caution is still dampening expansion plans.
