UK Small Business Confidence Hits 18-Month Low Amid Cost and Demand Pressures
The Federation of Small Businesses quarterly confidence survey has recorded its weakest reading in 18 months, with small and medium-sized enterprises across the UK reporting a deteriorating outlook driven by the combination of persistent cost pressures and subdued consumer and business demand. The survey, which covers tens of thousands of businesses across all sectors and regions, is one of the most comprehensive regular indicators of sentiment among the smaller business community that comprises the large majority of UK employers and contributes significantly to private sector employment.
The cost pressures weighing on small businesses have been intensifying through 2026. The National Living Wage increase to £12.21 per hour added significantly to employment costs for businesses in labour-intensive sectors including hospitality, retail, care and construction. Energy bills have not returned to pre-conflict levels despite the ceasefire, maintaining the higher operating cost base that the Iran war introduced. Business rates, despite relief measures, continue to be a significant fixed cost burden particularly for premises-intensive businesses.
Consumer demand signals have been mixed at best. The reduction in retail sales volumes that official data has confirmed is reflected in business surveys, with retailers, hospitality businesses and consumer service providers all reporting that footfall and average transaction values remain under pressure. Business-to-business demand, while more resilient in some sectors, has also softened as larger companies reviewed their own spending commitments in the uncertain economic environment.
The FSB called for specific measures to support small businesses in its quarterly recommendations, including a review of the business rates system, improved access to affordable finance through British Business Bank programmes and targeted energy cost support for the most energy-intensive small business categories.
