SME hiring plans fall to five-year low amid rising economic pressures

Plans by UK small businesses to create jobs have fallen to their lowest level in five years, as firms prioritise cost control and cashflow management in response to geopolitical disruption and economic uncertainty.

New research from Novuna Business Finance shows that while 67% of small businesses are working on plans to strengthen and grow over the spring, only 14% intend to hire new staff – the lowest proportion since 2021.

The findings come despite strong optimism at the start of the year, when 84% of small businesses said they expected to grow during the course of 2026. However, the first quarter has proved challenging, with global instability – including conflict in the Middle East – contributing to rising energy prices and renewed inflationary pressures.

Against this backdrop, many firms are shifting towards defensive strategies. The proportion of businesses prioritising the reduction of fixed costs has risen to 65%, the highest level in four years. Meanwhile, 34% say protecting cashflow is now a key focus – the highest figure recorded since 2019 – and 26% are placing greater emphasis on chasing late payments.

These pressures appear to be directly affecting hiring intentions. With businesses seeking to preserve financial stability, recruitment plans have been scaled back significantly, raising concerns about the outlook for employment growth.

Despite the cautious approach, some firms are continuing to pursue expansion opportunities. Around 28% of small businesses are planning to enter new overseas markets, although 19% still cite Brexit as a barrier to growth. Others are focusing on internal adjustments, with 15% reviewing funding arrangements to release working capital and 14% planning investment in new equipment to improve efficiency and reduce energy costs.

Regionally, businesses in the North West and South East are the most active in pursuing short-term growth initiatives, with 68% in both regions working on plans to strengthen their financial position. Several areas – including the East Midlands, Scotland and Yorkshire and the Humber – have seen an increase in the proportion of firms focusing on growth compared with late 2025.

Across sectors, there is a notable gap between ambition and performance. While industries such as legal services (83%), leisure and hospitality (81%), and manufacturing (79%) report high levels of activity around growth planning, far fewer businesses in these sectors say they are currently achieving growth.

Joanna Morris, Head of Insight at Novuna Business Finance, said the data highlights the tension between resilience and expansion.

“Given the severity of market uncertainty, the fact that two thirds of small businesses are working on growth initiatives is a huge positive – although much of this relates to practical measures to protect costs and cashflow. Job creation is a casualty of this defensive, cost-control posture and is not good news for a Government which, last Monday, launched a new package aiming to incentivise employers to hire 200,000 young people.”

The findings underline the difficult balancing act facing small businesses as they navigate a volatile economic environment, with uncertainty continuing to shape both investment and hiring decisions.