Cost-of-living crisis top risk for UK businesses with economic worries replacing employee risks in the top five

• Business leaders across the UK state that the cost-of-living crisis is the top risk to their successful trading — for the second year running
• Rising concerns for UK businesses include competition and demand, low cash flow and cyber — crime — all appearing in the top five risks
• Employee retention related issues take a back seat comparatively to previous years with none appearing in the top five, unlike 2023 and 2022, a possible indication of a more competitive job market for job seekers currently
• Cyber-crime has consistently moved up the list of fears over the last three years, reflecting the significant reliance on IT for many firms and an increase in fraudsters targeting businesses via their tech systems

The annual Gallagher Business Risk Index asked 1,000 leaders at UK businesses to identify the top risks affecting their firm. The current cost-of-living crisis came first for the second year running with a third of all organisations (32%) naming it as their top risk this year, compared to one in five (21%) in 2023, demonstrating this problem is growing in magnitude rather than improving.

When asked specifically why the cost-of-living crisis is their top risk, the top influencing factors were the inflation issues the country has suffered (cited by 50% of affected businesses), unstable economic conditions (39%) and Brexit (21%) demonstrating that despite the UK leaving the EU some four years ago, thousands of UK businesses continue to see a downward trend in successful trading as a result.

A marked change in CEO concerns is around employee related risks. In 2022 and 2023 issues including employee retention, lack of skilled talent and rising salaries were all amongst the top concerns, but none now appear in the top five ranking. The better job market from an employer’s perspective is further reflected in data that shows that pay growth has slowed and there are a dwindling number of vacancies in some sectors, which is leading to increased competition amongst candidates for available roles.ⁱ

Looking at risks entering the top ten and moving up the radar there has been a refocus from previous years with issues such as cash flow issues, late payments and general volatility all increasing. Cash flow and late payments are a major worry for many businesses and leaders are right to be concerned as in June 2024, company insolvencies in England and Wales were 16% and 17% higher than in previous months.ⁱⁱ

Competition is also a rising concern having been named by 20% of business leaders as the issue that keeps them awake at night. This includes businesses facing an increase in competition and a decrease in people using their services or products, so is likely to reflect the changing habits of consumers when it comes to spending, with less disposable income or a move to buying online, with one in seven shops empty at the start of 2024.ⁱⁱⁱ

Looking at how the risks depend on company size, large businesses cite cyber-crime as their biggest concern (25% of all firms naming it their number one risk) with data breaches also making their top five worries. Neither of these top the concerns for small or medium sized businesses which are more focused on costs of trading.

The risks associated with managing the rising costs of materials has been a consistent theme for firms since the index started and for sectors such as construction and manufacturing this remains the biggest issue with four in ten firms citing it as their biggest worry.

Table 1: Top 10 risks identified by UK businesses in 2022, 2023 and 2024

^*1,000 business leaders were asked to select the current top risks to their organisation - this is the percentage that selected each risk factor

Commenting on the findings, Neil Hodgson, Managing Director of Risk Management at Gallagher, said: "UK bosses are facing challenging and changeable risks to successful trading. The cost-of-living crisis has been ongoing for a number of years now, and although there isn’t a recession, it is clearly having an ongoing impact on spending levels.

"However, the marked change in risks around retaining employees and rising salaries shows some green shoots for businesses as its very much an employers market for some sectors, relieving them of some pressure.

"When it comes to concerns like late payments, cyber and data breaches, businesses can protect themselves against these kinds of financial risks by considering insurance which helps protect their business against the impact of these crystallising. There are many steps, including preventative risk management measures that businesses can take to become more resilient to the tricky economic environment and leaders should speak to their insurance broker to help them understand the options available to them."