SMEs raise prices and freeze hiring as pressures grow

More than a third of UK SMEs have increased prices over the past year and over a fifth have halted recruitment as rising costs and economic uncertainty strain business operations, according to new research from Paragon Bank.

The poll of 1,000 SME leaders, commissioned by the FTSE 250 specialist lender ahead of the Autumn Budget, highlights the mounting pressures businesses face amid expectations of potential tax rises and spending cuts. Two-thirds (66%) of respondents said global economic uncertainty has affected their business in the past year, while 62% reported supply chain disruption and 59% cited late payments as significant challenges.

Other key external pressures include trade tariffs (58%) and increased post-Brexit administrative requirements (57%). Rising operational costs were highlighted by nearly half (47%) of SMEs, alongside concerns over employment costs (36%), access to skilled workers (27%), and access to finance (29%). Paragon noted that many traditional high street lenders continue to underserve small and mid-sized firms, creating a gap that specialist lenders are increasingly stepping in to fill.

As SMEs move to protect cash flow, 36% have raised prices and 22% have introduced hiring freezes. Others are adopting new technologies or automation to drive efficiencies (30%), scaling back investment plans (28%) or, in some cases, making redundancies (16%). Despite the pressures, many firms are still seeking growth opportunities, with 27% exploring new markets and 24% investing in staff training.

Ahead of the 26 November Budget, SMEs are calling for government action to ease financial burdens. Employment taxes and costs top the list of policy priorities (42%), followed by business tax reform (36%), business rates (35%), incentives for innovation and investment (30%), skills development (27%) and improved access to finance (26%).

Phil Hughes, Deputy Managing Director of Paragon SME Lending, said the findings underscore the stakes for the Autumn Budget.

“SMEs play a vital role in the UK economy and their ability to invest and grow will be shaped by the decisions the Chancellor announces on 26 November,” he said.

“With many SMEs scaling back investments and finding it difficult to secure finance from traditional lenders, Paragon is working to bridge the gap and help small and mid-size businesses thrive – but finance is only part of the solution.”

Hughes added that smaller firms are too often hit hardest by policy changes. “SMEs shouldn’t be the ones paying the price. With tighter margins, they often bear the brunt of restrictive economic policy – the rise of Employer National Insurance Contributions, implemented in the previous Budget, impacted 73% of SMEs, for example.”

He said the Chancellor now has an opportunity to introduce measures that “level the playing field between smaller businesses and larger corporates,” stressing that SMEs employ 60% of the UK workforce and remain essential to maintaining national economic resilience.