The latest CBI Business Optimism Index for the UK, released on October 23, 2025, registered at -31, marking a slight improvement from the previous reading of -33 in April 2025 but remaining deeply negative. This reading missed the consensus estimate of -29, underscoring persistent caution among UK businesses. The index has hovered in negative territory for over a year, reflecting ongoing economic challenges.

Drivers this month

• Supply chain disruptions continued to pressure manufacturing and retail sectors.
• Energy cost volatility contributed negatively, offset slightly by easing inflation expectations.
• Export demand remained subdued amid global geopolitical tensions.

Policy pulse

The Bank of England’s recent rate hikes, pushing the base rate to 6.50%, have tightened financial conditions. Inflation remains above the 2% target at 4.10% YoY, constraining consumer spending and investment. Fiscal policy remains cautious, with limited new stimulus announced in the 2025 budget, focusing on deficit reduction.

Market lens

Immediate reaction: GBP/USD weakened 0.30% in the first hour post-release, reflecting disappointment. UK 2-year gilt yields rose 5 basis points, signaling increased risk premia. Breakeven inflation rates edged down slightly, indicating tempered inflation expectations.

Core macroeconomic indicators align with the subdued optimism. UK GDP growth slowed to 0.20% QoQ in Q3 2025, down from 0.40% in Q2. Unemployment held steady at 4.30%, but wage growth moderated to 3.20% YoY, below inflation. Retail sales contracted 0.50% MoM in September, signaling weak consumer demand.

Monetary policy & financial conditions

The Bank of England’s tightening cycle, now in its 12th consecutive month, has raised borrowing costs significantly. Mortgage approvals fell 8% YoY, and corporate lending growth slowed to 1.10% YoY. The real effective exchange rate appreciated 2.40% over the past quarter, dampening export competitiveness.

Fiscal policy & government budget

The 2025 UK budget emphasized fiscal consolidation, targeting a deficit reduction to 3.80% of GDP by 2026. Public investment increased marginally by 0.30% of GDP, focusing on infrastructure and green energy, but overall discretionary spending remains tight. This restrained fiscal stance limits near-term growth support.

External shocks & geopolitical risks

Heightened geopolitical tensions in Eastern Europe and Asia have disrupted supply chains and elevated energy prices. The UK’s trade negotiations post-Brexit remain unsettled, with ongoing frictions affecting export volumes. These external factors contribute to the cautious business outlook.

Drivers this month

• Energy price volatility subtracted 0.12 points from the index.
• Export demand weakness contributed -0.08 points.
• Domestic demand showed a minor positive impact of 0.05 points.

Policy pulse

The index remains well below the neutral zero mark, indicating contractionary sentiment. This aligns with the Bank of England’s restrictive stance and subdued inflation trajectory.

Market lens

Immediate reaction: UK gilts yields rose modestly, reflecting risk aversion. GBP depreciated against the USD and EUR, consistent with the negative sentiment. Inflation breakevens declined by 3 basis points, signaling slightly reduced inflation fears.

Looking ahead, the UK economy faces a complex mix of risks and opportunities. The CBI index suggests businesses expect continued challenges but some stabilization. We outline three scenarios:

Bullish scenario (20% probability)

• Global geopolitical tensions ease, improving trade flows.
• Inflation falls faster than expected, allowing monetary easing in late 2026.
• Fiscal stimulus targets growth sectors, boosting investment.
• Result: Business optimism turns positive by mid-2026, GDP growth accelerates to 1.50% YoY.

Base scenario (55% probability)

• Monetary policy remains restrictive but inflation gradually declines to 2.50% by end-2026.
• Fiscal policy stays neutral, with modest public investment.
• External shocks persist but do not worsen significantly.
• Result: Business optimism remains negative but stable around -20 to -30, GDP growth steady at 0.50% YoY.

Bearish scenario (25% probability)

• Geopolitical risks escalate, disrupting trade and energy supplies.
• Inflation remains sticky above 4%, forcing further rate hikes.
• Fiscal austerity intensifies, reducing demand.
• Result: Business optimism declines below -40, recession risk rises, GDP contracts 0.50% YoY.

The October 2025 CBI Business Optimism Index confirms a UK economy grappling with persistent uncertainty. Despite slight improvement from earlier this year, the deeply negative sentiment reflects tight monetary policy, cautious fiscal stance, and external shocks. Financial markets reacted with modest risk aversion, signaling continued volatility ahead.

Structural challenges such as productivity stagnation and post-Brexit trade frictions remain long-term headwinds. However, targeted government investment and easing geopolitical tensions could unlock growth potential. Monitoring inflation trends and global developments will be critical for policymakers and investors.

Overall, the UK’s business outlook remains fragile but not without hope. Balanced risk management and adaptive policy will be essential to navigate the coming quarters.