Small Business Confidence Hits Two-Year Low as Energy and Labour Costs Surge

Small business confidence in the United Kingdom has fallen to its lowest level in two years according to the Federation of Small Businesses’ quarterly survey, with the simultaneous pressure of higher energy costs, mandatory minimum wage increases and subdued consumer demand creating the most challenging trading environment many small employers have faced since the post-pandemic inflation shock of 2022.

The FSB’s Small Business Index, which measures sentiment among its membership of around 160,000 firms, registered a sharp negative reading in the first quarter of 2026, with the deterioration accelerating through March and April as the economic consequences of the Iran war became apparent. A clear majority of respondents cited energy costs as either the primary or a significant secondary factor in their reduced confidence, reflecting the direct impact of higher oil and gas prices on the costs of heating premises, powering equipment and fuelling commercial vehicles.

The April introduction of the new National Living Wage rate of £12.21 per hour, while welcomed in principle by many business owners as a step towards fair pay, added to the cost pressures at precisely the moment when external headwinds were already intensifying. Firms in the retail, hospitality and care sectors — where minimum wage workers make up a substantial proportion of the workforce — reported the sharpest confidence decline.

Looking ahead, a significant minority of survey respondents indicated they were considering price increases to pass through rising costs, while others were contemplating hiring freezes, reduced working hours or in some cases redundancies. Consumer-facing businesses expressed particular concern about the ability to pass costs through at a time when household budgets were themselves under pressure from rising energy bills and food prices.