Small business growth forecasts fall to 12-year low

Small business growth expectations have fallen to their lowest level in 12 years, with just 24% of UK SMEs forecasting growth over the next three months, according to the latest Novuna Business Finance Business Barometer.

The latest quarterly survey shows optimism has fallen from 28% in the previous quarter to 24% in Q3 2026 – the sharpest quarterly decline in 18 months. The figure marks the weakest level recorded since the study began in 2014, excluding the immediate impact of the first Covid-19 lockdown.

The research also highlights a significant shift in business sentiment, with the proportion of firms predicting growth now matching the percentage of businesses that say they are contracting or simply struggling to survive, both at 24%. Novuna said this is the first time the two measures have been equal since the pandemic began.

The findings suggest hopes of a sustained recovery in SME confidence have faded after a modest improvement earlier this year. Following Labour’s election victory in July 2024, growth expectations briefly rose from 30% to 35%, but have since trended downwards, with only a temporary recovery during the first half of 2026.

Regional picture deteriorates

The downturn was widespread across the UK, with the North West the only region to record an improvement in business growth expectations, rising modestly from 26% to 28%.

Elsewhere, confidence weakened across every English region, with the steepest declines recorded in the South East, where growth forecasts fell from 21% to 16%, and the South West, which dropped from 22% to 15%.

London continued to report the strongest growth outlook at 36%, although this represented a slight decline from 37% in the previous quarter and 40% at the start of the year.

In Wales, optimism fell sharply from 28% to 20%, while Scotland remained unchanged at 22%. However, Scottish SMEs have seen a significant deterioration over recent months, having reported growth expectations of 36% in the first quarter of 2025.

Construction and retail confidence falls sharply

The sector data revealed particularly severe declines across several consumer-facing industries.

Construction experienced one of the sharpest reversals, with the proportion of firms expecting growth almost halving from 29% to 15%.

Retail confidence also weakened significantly, falling from 38% to 21%, while hospitality slipped from 25% to 21%, suggesting the sector failed to benefit from the boost typically associated with the summer season, major sporting events and warmer weather.

Finance and accounting businesses also saw expectations fall from 45% to 34%, while media businesses declined from 35% to 21%.

There were, however, some brighter spots. Manufacturing businesses reported a modest improvement, with growth forecasts rising from 29% to 31%, while transport increased from 28% to 35%. IT and telecommunications firms also saw optimism improve from 29% to 32%, with agriculture rising from 20% to 27%.

Jo Morris, Head of Insight at Novuna Business Finance, said: “The latest findings are a concern.

“Following a quarter-on-quarter slide in small business growth forecasts during 2025, this year promised hope of recovery – with the percentage of small businesses forecasting growth edging up to 28% by the Spring. However, the fall to 24% this quarter is a setback and (excepting the quarter when the UK went into the first Covid lockdown) growth forecasts now stand at their lowest level since the Business Barometer study began in 2014.”

She added: “The context of geo-political tensions, rising fuel prices and political uncertainty following the local elections have probably all played out when it comes to small business planning. The one thing small businesses don’t like is uncertainty.

” Whilst small business outlook is cautious, the community continues to demonstrate strong resilience. Now is the time for everyone to support SMEs with what they need to create jobs and drive future economic growth.”