UK firms face pressure from borrowing costs, energy and new AI plans

The UK’s 10-year borrowing costs have climbed as the yield on a 30-year gilt hit 5.89%, its highest level since 1998, adding pressure on companies and households. Prime Minister Andy Burnham has not ruled out further tax rises in the October budget, while debt levels stand at 98.2% of Gross Domestic Product. Energy costs remain a concern, with North Sea Gas prices more than doubled this year and UK natural gas prices eight times higher than in the USA.

Business sentiment remains fragile despite a slight improvement in the Institute of Directors Economic Confidence Index. Fewer than 24% of respondents expected the new government to improve the UK or business outlook, while tax uncertainty, policy uncertainty and demand uncertainty were cited as key barriers. Foreign acquisitions of UK companies rose to £25.4 billion, while UK-on-UK deal value reached £4.2 billion.

The government has launched the first competitions under the £100 million Sovereign AI R&D Procurement Scheme, targeting NHS productivity, compute efficiency, defence integration and AI agent security. Smaller businesses also face smart meter changes, with suppliers required to communicate new rules from January 2027 and include smart meter clauses in designated fixed-term contracts by September 2027.