What will 2025 hold in store for UK businesses?
Atradius underwriters covering retail, agri-foods, paper and packaging, and transport, give their views on what to expect.
“Insolvency risks will remain high” - Nicola Harris, Senior Underwriter, on the transport sector
Overall, in 2025 insolvency risks will remain high across the transport sector.
In automotive, we’ll see only a partial recovery after a tough 2024. The EV transition is likely to prove challenging as demand remains below target, despite heavy discounting. Consumers still prefer internal combustion engines, and those that don’t, are increasingly drawn to cheap Chinese models. Trade rules are another hurdle for manufacturers too.
In haulage, rising wages, vehicle replacement expenses, and potential fuel price increases continue to squeeze margins. Growth is expected to slow to 2.5% in 2025 after a stronger recovery in 2024, with competition keeping turnover low.
The outlook is brighter in aerospace, where we expect a gradual recovery. Supply-chain constraints (COVID bottlenecks, shortages of staff and stock) will continue to pose problems but should improve by the end of 2025. UK production is expected to return to growth of 1.6% in 2025 following a 2.5% contraction in 2024 helped by increasing delivery rates, record backlogs of large commercial aircraft and government investment.
“A resilient year” - Chris Wall, Senior Underwriter, on the packaging and paper sector
This will be a resilient year for businesses in the paper and packaging sector. Cost prices have abated a little, which will allow for margin protection and that will be key going forward.
The key focus for many paper and packaging businesses in 2025 will be innovation and research and development. Closely tied to sustainability and the concepts of the circular economy or closed-loop recycling which are becoming increasingly prevalent. This shift reflects not only changing consumer perspectives on products but also the growing importance of ESG targets for companies. Investment in these areas will likely drive margins and differentiation within the sector.
However, the big unknown remains in geopolitical events. In the US, the impact of the Trump administration on global trade is uncertain, with concerns about potential effects on oil prices and the possibility of further sanctions on Russia.
"Difficult decisions on investment, pricing and employment levels" - Ruby Hartery, Senior Underwriter, on retail
The coming months will no doubt bring new challenges for the retail sector. Last year's budget, which announced an increase in National Insurance rates for employers and an increase to the national living wage, will come at a huge cost.
This increase in costs is likely to lead to retailers having to make some difficult decisions on investment pricing and employment levels. There are some positives though. We would expect to see further reductions in interest rates over the next year, which should lead to an improvement in consumer spending. But overall, we would expect it to be another challenging year for retail and we're likely to see a rise in insolvencies.
"Cautiously positive” - James Napier, Senior Underwriter, on food and agriculture
The outlook for the food and agriculture sector for 2025 is cautiously positive. The sector was resilient last year, when a lot of the concerns we had didn’t play out as expected. We saw food price inflation falling in 2024 and if this continues into 2025, we should generally see lower food prices. This will have a mixed impact on UK food businesses but should have a positive impact on the average British household.
Something which will play a big role in the performance of the sector in 2025 will be the impact of the 2024 Budget. The increase in employers' National Insurance contributions will lead to a higher cost base for all businesses. This will be particularly impactful in the food sector, where margins are generally quite slim.
On top of the National Insurance increase, the increase in tax on industrial goods imported, as well as the changes to the inheritance tax system will lead to higher costs for food companies and agricultural companies across the board. Much will depend on businesses’ ability to manage higher costs in the year as well as any other unexpected events.
Keeping insolvency risks in check
For businesses across all sectors, staying informed and proactive will be key to managing risks and seizing opportunities in 2025 and beyond. Trade credit insurance will remain an essential part of this, helping businesses to mitigate their risks and go for growth as economic conditions slowly improve.
