UK small business growth forecasts hit lowest annual level since 2020

UK small business growth expectations have remained below 30% throughout 2026 for the first time in more than a decade, according to new research from Novuna Business Finance.

The latest Business Barometer found that just 26% of small businesses expect to grow during the final three months of 2026, while half anticipate no change in their trading performance and 23% expect to contract or face difficulties surviving the winter.

The findings mark the weakest sustained period for small business growth forecasts since the Covid pandemic, with the proportion of firms expecting growth remaining below 30% for seven consecutive quarters.

Throughout 2026, growth expectations have remained subdued, with 27% of businesses predicting growth in Q1, 28% in Q2, 24% in Q3 and 26% in Q4.

Novuna Business Finance, which has tracked small business confidence quarterly since 2014, said the longer-term trend highlighted a sustained deterioration in growth expectations.

Between Q1 2017 and Q1 2020, an average of 37% of small businesses expected growth in the following quarter. This fell to 33% between Q1 2022 and Q1 2025, before declining further to an average of 26% since Q2 2025.

The research also highlighted concerns about rising operating costs and potential tax changes. More than half (53%) of small businesses said further increases in National Insurance would negatively affect their growth outlook and finances, while 44% expressed concerns about potential Corporation Tax rises.

Meanwhile, 62% said additional taxes on petrol or diesel vehicles would negatively affect their growth plans.

Regional and sector differences

The research revealed significant regional variations in business confidence.

The North West recorded the largest improvement in growth expectations between the beginning and end of 2026, rising from 21% to 29%. The East Midlands also increased from 22% to 29%, while the North East rose from 22% to 27%.

In contrast, London recorded a fourth consecutive quarterly decline, with the proportion of small businesses forecasting growth falling from 40% at the start of the year to 32% in Q4, its lowest level since 2020.

The East of England experienced a particularly sharp deterioration, with growth expectations falling from 24% to 15%.

Sector performance was similarly mixed.

Transport and distribution recorded an increase in growth expectations from 29% to 35%, while IT and telecoms rose from 26% to 30%. Education increased from 16% to 25%, and leisure and hospitality from 22% to 25%.

However, agriculture saw growth expectations fall from 21% to just 11%, while property and real estate declined from 28% to 17%. Medical services also recorded a significant fall, from 34% to 21%.

Manufacturing remained unchanged at 27%, while construction was broadly stable, increasing slightly from 22% to 23%.

Retail growth expectations improved from 21% in Q3 to 27% in Q4 ahead of the Christmas trading period, although this remained below the 32% recorded at the start of the year.

Jo Morris, Head of Insight at Novuna Business Finance, said: “We were surprised to see small business growth forecasts fall below the 30% level during summer 2025, but the real concern since then is it hasn’t bounced back to its usual level in the mid-thirties.

“2026 is the first year on record in the Business Barometer in which the percentage of small businesses predicting growth has stayed at around 26% for the whole year.”

Morris highlighted particular challenges facing younger businesses, with just 17% of start-ups forecasting growth during the final quarter of 2026.

She added: “Our quarterly research this year shows that many small businesses are working hard to absorb the pressures of rising fuel and energy costs. Many are also concerned about how further tax, inflation and interest rate changes could impact their growth plans.

“At the same time, the majority of smaller businesses have not yet fully worked through whether and how AI could practically help business growth.”

Despite the subdued outlook, Morris said small businesses had demonstrated resilience through previous periods of economic uncertainty and would continue to seek opportunities to adapt and invest.

“Looking ahead to 2027, the UK’s growth ambitions depend heavily on their success. The autumn and winter months are an important time to step up and back UK small businesses.”

The Novuna Business Finance Business Barometer is based on a nationally representative survey of 1,000 UK small business owners and has tracked quarterly growth expectations since 2014.