Small and medium-sized enterprises (SMEs) are central to the UK economy. They account for more than half (52%) of total turnover in the UK private sector, as well as 60% of private sector employment. There are also a lot of them. Numbering 5.5 million, SMEs make up over 99% of the UK’s business population.
But many are struggling to survive amid tough trading conditions caused by a confluence of factors. Successive geopolitical crises have upset political stability at home and threatened the supply of energy resources across Europe. The US administration has unleashed all sorts of pernicious policies, upending international trade. And the UK’s domestic economy is still suffering from stubbornly high inflation and weak consumer demand.
The new government has done little to help matters. When the Labour Party won the 2024 general election by a historic margin, they promised to unlock business growth and create wealth across the economy. So far, however, their policies have made doing business costlier for firms across the country.
High running costs tops the list of challenges for SMEs, according to the 2025 SME Insights Report from Simply Business, a UK business insurer, which surveyed 2,300 UK small-business owners and consumers. Increases in National Insurance (NI) contributions and the minimum wage contribute to these, but there are other factors at play. Across Europe, energy prices remain elevated compared with pre-pandemic years and inflation in the UK (3.8% to August 2025) is still higher than the Bank of England’s target of 2%. Business-rates reforms have helped, but have been insufficient to offset rising costs in other areas.
Uncertain consumer demand is also plaguing small businesses. Confidence among UK consumers fell to -10.4% in Q3 2025, according to the Deloitte Consumer Confidence Index, which measures net-positive consumer confidence scores across six metrics, including job security and personal debt.
The outlook among UK business leaders is equally gloomy: business leaders’ confidence in their organisation’s prospects over the next 12 months fell to -9% on a similar net-positive scale, according to recent data from the Institute of Directors.
This is bad news for businesses, whether they sell to consumers or to other companies. Confidence can be both a reflection and a determinant of economic health. Low confidence often means that buyers will postpone new purchases or reduce their spending by cancelling services or subscriptions.
Many UK SMEs have done just this in anticipation of sustained macroeconomic difficulties. More than two in five have delayed buying new equipment, while nearly a quarter have reduced spending on marketing or subscriptions.
The expectation of economic hardship has impacted firms in more fundamental ways, too. Some SMEs have halted expansion or hiring plans, while others have diversified into new product or service offerings.
Already, rising costs have forced 24% of UK SMEs to pause their hiring and 16% to reduce their employees’ hours. More than a quarter have struggled to pay their utility bills and one in 10 has reduced their use of water or energy.
Left with few alternatives, SMEs are raising their prices to offset the high cost of doing business. For most of the 74% of SMEs planning price rises, the hike will be small – no more than 10%. But 15% of those firms will raise their prices by at least 20%.
Still, only 17% of small-business leaders expect their firm’s profits to increase this year, down from 43% in 2023. Meanwhile, 44% expect profits to fall, compared with just 28% two years ago.
Of those expecting profits to decrease, 75% predicted at least a 10% decline, more than one in three (36%) were preparing for a drop of at least 25% and almost one in 10 said profits would fall by more than 50%.
The situation is precarious for many SMEs. If they struggle into 2026, 31% could be forced to cease operations, at least temporarily, and one in 10 will have to reduce headcount.
So what might help to bring them back from the brink? Geopolitics is difficult to predict, much less control. But domestic policy decisions are easier to influence. According to survey respondents, the government could support small businesses by reversing the increase in employers’ NI contributions, simplifying the tax process, providing easier access to grants and funding, further reducing, or flat-out abolishing, business rates and encouraging consumers to shop locally. No doubt small-business leaders will await the autumn budget with bated breath.
Small and medium-sized enterprises (SMEs) are central to the UK economy. They account for more than half (52%) of total turnover in the UK private sector, as well as 60% of private sector employment. There are also a lot of them. Numbering 5.5 million, SMEs make up over 99% of the UK’s business population.
But many are struggling to survive amid tough trading conditions caused by a confluence of factors. Successive geopolitical crises have upset political stability at home and threatened the supply of energy resources across Europe. The US administration has unleashed all sorts of pernicious policies, upending international trade. And the UK’s domestic economy is still suffering from stubbornly high inflation and weak consumer demand.
The new government has done little to help matters. When the Labour Party won the 2024 general election by a historic margin, they promised to unlock business growth and create wealth across the economy. So far, however, their policies have made doing business costlier for firms across the country.
High running costs tops the list of challenges for SMEs, according to the 2025 SME Insights Report from Simply Business, a UK business insurer, which surveyed 2,300 UK small-business owners and consumers. Increases in National Insurance (NI) contributions and the minimum wage contribute to these, but there are other factors at play. Across Europe, energy prices remain elevated compared with pre-pandemic years and inflation in the UK (3.8% to August 2025) is still higher than the Bank of England’s target of 2%. Business-rates reforms have helped, but have been insufficient to offset rising costs in other areas.
Uncertain consumer demand is also plaguing small businesses. Confidence among UK consumers fell to -10.4% in Q3 2025, according to the Deloitte Consumer Confidence Index, which measures net-positive consumer confidence scores across six metrics, including job security and personal debt.
The outlook among UK business leaders is equally gloomy: business leaders’ confidence in their organisation’s prospects over the next 12 months fell to -9% on a similar net-positive scale, according to recent data from the Institute of Directors.
This is bad news for businesses, whether they sell to consumers or to other companies. Confidence can be both a reflection and a determinant of economic health. Low confidence often means that buyers will postpone new purchases or reduce their spending by cancelling services or subscriptions.
Many UK SMEs have done just this in anticipation of sustained macroeconomic difficulties. More than two in five have delayed buying new equipment, while nearly a quarter have reduced spending on marketing or subscriptions.
The expectation of economic hardship has impacted firms in more fundamental ways, too. Some SMEs have halted expansion or hiring plans, while others have diversified into new product or service offerings.
Already, rising costs have forced 24% of UK SMEs to pause their hiring and 16% to reduce their employees’ hours. More than a quarter have struggled to pay their utility bills and one in 10 has reduced their use of water or energy.
Left with few alternatives, SMEs are raising their prices to offset the high cost of doing business. For most of the 74% of SMEs planning price rises, the hike will be small – no more than 10%. But 15% of those firms will raise their prices by at least 20%.
Still, only 17% of small-business leaders expect their firm’s profits to increase this year, down from 43% in 2023. Meanwhile, 44% expect profits to fall, compared with just 28% two years ago.
Of those expecting profits to decrease, 75% predicted at least a 10% decline, more than one in three (36%) were preparing for a drop of at least 25% and almost one in 10 said profits would fall by more than 50%.
The situation is precarious for many SMEs. If they struggle into 2026, 31% could be forced to cease operations, at least temporarily, and one in 10 will have to reduce headcount.
So what might help to bring them back from the brink? Geopolitics is difficult to predict, much less control. But domestic policy decisions are easier to influence. According to survey respondents, the government could support small businesses by reversing the increase in employers’ NI contributions, simplifying the tax process, providing easier access to grants and funding, further reducing, or flat-out abolishing, business rates and encouraging consumers to shop locally. No doubt small-business leaders will await the autumn budget with bated breath.
