Phillipou: ONS data signals ‘cautious optimism’ among UK SMEs

Alejandro Gonzalez

Mon, Jun 30, 2025, 10:04 AM 2 min read

John Phillipou, Managing Director of SME Lending at Paragon Bank, has responded to the latest business investment figures from the Office for National Statistics (ONS), highlighting signs of “cautious optimism” among UK firms, particularly SMEs.

The ONS’s revised report, Business investment in the UK: January to March 2025 revised results, published on 30 June 2025, shows that UK business investment rose by 3.9% in the first quarter of 2025. Although this is a downward revision from the initial estimate of 5.9%, investment levels remain 6.1% higher than in the same quarter a year ago.

UK business investment and whole economy investment, chained volume measure, seasonally adjusted, Quarter 1 (Jan to Mar) 1997 to Quarter 1 2025

Phillipou, who is also the Chair of the Finance & Leasing Association (FLA), acknowledged the lower-than-provisional figure but noted that a 6.1% annual increase still reflects a “solid” year-on-year performance.

He pointed to investment in transport equipment and ICT as the main drivers of growth, consistent with trends Paragon has observed among its SME clients. “It’s no surprise for us to see that transport was among the key drivers of this growth,” he said, referencing continued demand for asset finance in the logistics and infrastructure sectors.

The ONS attributed the strength in transport investment largely to an uptick in aircraft investment. Meanwhile, growth in business investment was partially offset by declines in spending on intellectual property products (IPP), and a more muted contribution from buildings.

Phillipou also remarked on this hesitancy around longer-term investment in construction and real estate. The dip in building investment, he said, suggests that “some firms remain hesitant to commit” amid persistent economic uncertainty.

Gross fixed capital formation (GFCF), a broader measure encompassing both public and private sector investment, increased by 2.0% in the quarter — also revised down from an earlier 2.9% estimate. GFCF now sits 3.5% above the level recorded in the same quarter of 2024.

Looking ahead, Phillipou believes stabilising economic conditions could support further investment. “With inflation easing and interest rates stabilising, we hope to see investment momentum continue through the remainder of the year,” he said.

However, he stressed that realising the UK’s economic potential will depend on maintaining support for small businesses through accessible financing options. “If we’re serious about enabling the UK’s growth potential,” he said, “continued support for SMEs will be critical.”