One in five UK business leaders say high inflation and rising costs are the biggest external challenge facing operations, according to new findings from Zoho’s Digital Health Study 2026. Zoho said 50 per cent of respondents have seen cost per employee rise over the past year, while 24 per cent are prioritising cost-reduction initiatives and 18 per cent are adopting “shrinkflation” approaches — delivering the same outcomes with fewer resources.
The survey was circulated as Rachel Reeves delivered her Spring Statement on Tuesday, with the Chancellor stressing an improving outlook while acknowledging a fragile economy. The Office for Budget Responsibility now expects the UK economy to grow by 1.1 per cent in 2026, and forecasts inflation will fall faster than previously expected.
For many operators, the pressure is concentrated in labour and overheads. From 1 April 2026, the National Living Wage rises by 4.1 per cent to £12.71 per hour for eligible workers aged 21 and over, a change that quickly feeds into overtime, agency cover, and the cost of recruiting and retaining frontline staff. In sectors where demand is uneven and margins are tight, small increases at the hourly rate translate into difficult decisions about opening hours, service levels, and the pace of investment.
Sachin Agrawal, Managing Director for Zoho UK, said: “The reality for many UK business leaders, is cost pressures and uncertainty is still as high as ever. Businesses are navigating an environment where wage growth and higher input costs are forcing leaders to rethink operational processes to prioritise productivity, automation and smarter use of existing resources to maintain profits. Strategies that focus around long-term business resilience remain extremely important to have the most chance at long term success.”
Zoho’s results suggest cost-cutting is being paired with a more detailed rethink of how work gets done. The “shrinkflation” figure is a marker of that shift. In practice, it tends to show up as fewer bespoke exceptions in delivery, tighter scope definitions, and more standardised workflows that reduce rework and handoffs. The risk, for customer-facing teams, is that hidden service reductions erode trust. The upside is that standardisation can free capacity without adding headcount, particularly when paired with automation in finance, customer support, and back-office administration.
Agrawal said leaders are still prepared to invest, but spending is being filtered through a tougher test. “Business leaders still want to invest and grow in the current economic climate, but they are doing so more selectively by investing in technologies that deliver clear efficiency gains in order to remain competitive. Many vendors are under pressure to deliver more value as demand shifts.”
Much of the quickest progress now sits in operational plumbing. Companies are taking a hard look at duplicated software estates, renewal creep, and reporting that exists largely because systems do not integrate cleanly. Others are tightening commercial discipline — reducing the number of bespoke price points, limiting free custom work, and shortening the path from order to invoice to cash. These moves rarely make headlines, but they shape resilience in a year when hiring is harder to justify and customers are less tolerant of price rises.
Trading data from Xero points to a similar environment for smaller companies. Xero’s UK Small Business Insights, based on anonymised and aggregated data from 440,000 small businesses, shows sales grew 3.2 per cent year on year in the October to December quarter, the smallest rise in 18 months.
Kate Hayward, UK Managing Director at Xero, said: “The Chancellor’s pro-growth message is likely to feel at odds with reality, particularly for small businesses who are still managing the fall-out of a difficult winter and likely bracing for another year of uncertainty.
“Our data shows sales growth hit an 18-month low in the December quarter, a ‘make or break’ period where the festive boost that many were banking on simply never arrived.Labour-intensive sectors like hospitality are particularly exposed as they navigate rising overheads and flatlining demand.”
In the wake of the Spring Statement, the management agenda is being shaped by rising employment costs, cautious customers, and tighter scrutiny of every pound of spend. The most durable responses are likely to be the least theatrical: simplify delivery, measure productivity in the workflows that absorb the most time, and invest only where efficiency gains can be demonstrated quickly.
