Much of the discussion about the health of British business tends to focus on the casualties: companies entering insolvency, shops closing, jobs being lost and businesses disappearing altogether.
But there is another, less visible consequence of a prolonged period of economic uncertainty. Plenty of perfectly viable businesses are still standing. The problem is that too many of them are standing still.
The latest economic evidence presents a curious picture. The economy is still growing, and many companies expect their own revenues to rise. Yet investment and recruitment remain stubbornly weak.
The British Chambers of Commerce expects business investment to fall by 0.2% this year, before growing by just 0.4% in 2027. More strikingly, only 17% of firms now say they are increasing investment – the lowest proportion since the pandemic.
The reluctance to invest is not simply a reflection of businesses expecting sales to collapse. The Institute of Directors’ August survey recorded revenue expectations at +12, yet investment intentions remained at -9 and headcount expectations at -6. Cost expectations, meanwhile, stood at +83.
That is a curious combination: businesses expecting to sell more, but still reluctant to invest more or employ more people.
Nor is that caution difficult to understand. The Bank of England’s latest Decision Maker Panel, based on responses from 2,012 businesses, found that 61% expect the recent energy shock to reduce profit margins over the next year, while 59% expect to increase prices.
Actual employment among firms surveyed was already 0.2% lower than a year earlier; expected employment growth over the next 12 months was just 0.1%.
This begins to look less like businesses waiting for a recovery and more like a change in behaviour. After several years of shocks, conserving cash, limiting recruitment and postponing investment have become embedded management responses.
Faced with uncertainty, preserving cash is entirely rational. If customers are taking longer to make decisions, costs have risen and borrowing remains expensive, this may not feel like the moment to recruit another five people, replace machinery, take larger premises or launch a new product.
Put off the decision for six months. Keep some extra cash in the bank. See what happens.
For an individual business, that can be prudent management. Across thousands of businesses, however, it can become something rather more significant. There is a danger that caution becomes habit.
The machine that should have been replaced gets another year patched on to its working life. The sales director who leaves is not replaced. The new branch remains an idea on a spreadsheet. Training is trimmed, marketing spend is cut and technology investment is confined to what is essential.
None of those decisions puts a company into financial distress. Indeed, each may improve its cash position in the short term. But businesses cannot indefinitely save their way to prosperity.
Many management teams have become extremely good at adapting. Costs have been taken out, margins defended, working capital managed more tightly and discretionary spending scrutinised. That resilience deserves recognition. But resilience and growth are not the same thing.
There comes a point at which repeatedly deferring investment begins to change the business itself. Ageing equipment affects productivity. Failing to recruit leaves existing staff stretched. Cutting marketing eventually affects the sales pipeline. Putting off technology investment risks competitors becoming faster and more efficient.
The Bank of England has picked up an interesting sign of this. Some businesses are now restarting essential investment that, in its words, “can no longer remain on pause”. That is a revealing phrase.
There is also a danger in assuming that waiting will necessarily produce the clarity businesses want. There will always be another Budget, interest-rate decision, geopolitical event or set of economic forecasts around the corner.
Uncertainty is not an interruption to normal business conditions. Increasingly, it is one of them. The question for directors is therefore not simply whether they can afford to invest, but whether they can afford not to.
That does not mean throwing caution to the wind. A company with weak cashflow and excessive borrowing would be foolish to embark on an ambitious expansion programme simply because growth sounds more attractive than retrenchment.
But there is an important difference between conserving cash as part of a plan and simply postponing decisions. For some companies, cash preservation must come first. For others, there may be scope to invest selectively, refinance, release working capital or dispose of non-core assets to fund areas capable of generating growth.
The important thing is that it is a conscious decision. Standing still can feel like the lowest-risk option because nothing new is being committed. In reality, doing nothing carries risks of its own.
Insolvency is an obvious measure of business distress because it is visible and countable. Lost opportunities are not. We will never know how many jobs were not created this year, how many new products were not launched or how many expansion plans never left the boardroom.
But over time, a business that concentrates exclusively on surviving today risks becoming less equipped to compete tomorrow.
Sometimes standing still is exactly the right thing to do. Just don’t mistake it for going forward.
Written by our analysts’ team at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.