Nine in ten SMEs say cost of living pressures threaten growth plans, Novuna finds

Nine in ten UK small businesses say rising cost of living pressures are threatening their growth ambitions for 2026, according to new research from Novuna Business Finance, with weakening customer demand and rising operating costs continuing to weigh heavily on the SME sector.

The latest findings from the lender’s quarterly Business Barometer reveal that 90% of small businesses believe one or more aspects of the cost-of-living crisis pose a threat to their business and future growth plans. The figure represents the highest level recorded since Novuna began tracking the impact of the crisis in 2022.

The research suggests that weakening consumer demand remains the greatest concern. More than two in five SMEs (42%) fear customers will reduce spending, with the issue proving particularly acute for hospitality businesses (60%) and retailers (72%). Almost half (48%) of hospitality firms also expect overall customer numbers to decline during the summer months.

At the same time, businesses continue to grapple with rising costs throughout their supply chains. One-third (33%) said they had been forced to absorb higher supplier costs, while 35% said they were unable to pass inflation-related price increases on to customers.

Manufacturers (53%) and agricultural businesses (51%) reported the greatest pressure from supplier cost increases, while hospitality and retail firms (both 53%) were the least able to recover those costs through higher prices.

Energy prices also remain a significant challenge. Around one-third (32%) of SMEs cited rising energy costs as a major concern, while 29% highlighted increasing transport and logistics costs. A further quarter (25%) pointed to rising rents and business rates as an additional financial burden.

Energy-related cost pressures were felt most strongly by transport and distribution businesses (53%), manufacturers (49%) and agricultural firms (39%).

The research also found growing pressure on employers to maintain competitive wages. More than one in five SMEs (21%) said they were concerned about their ability to increase staff pay in line with the rising cost of living, compared with 16% two years ago. The concern was particularly evident in manufacturing, where 39% of businesses cited it as an issue.

Regional analysis revealed that businesses in Yorkshire and the Humber, the North East and Scotland were among those experiencing the greatest pressures.

Small businesses in the North East (56%) and Scotland (50%) were the most concerned about falling customer spending, while firms in Yorkshire and the Humber (53%) and Scotland (49%) were most affected by rising supplier costs. Businesses in Yorkshire and the Humber also reported the greatest difficulty passing higher costs on to customers, with half (50%) saying they were unable to do so.

Against this backdrop, access to finance is becoming increasingly important. Half of all SMEs (50%) said they needed funding to invest in future growth, rising to 62% among both manufacturers and hospitality businesses, and 59% in retail.

Scotland recorded the sharpest year-on-year increase in demand for growth finance, with the proportion of businesses seeking funding rising from 46% to 55%.

Commenting on the findings, Jo Morris, head of insight at Novuna Business Finance, said: “As part of our long-standing tracking of small business growth outlook, we have monitored the business impact of the cost-of-living crisis since it began in 2022. The results show that cost-of-living pressures have been a consistent worry for small business owners for many years. If anything, concerns have risen this year.”

She added that the increase in employers’ National Insurance contributions, concerns over further tax rises, higher oil prices and weakening customer demand were all adding to the pressures facing SMEs.Top of Form

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