UK small business innovation slumps to four-year low

The percentage of UK small businesses working on new initiatives to unlock future growth has dropped to its lowest point in four years, falling to just 65%, according to new research from Novuna Business Finance. The figure is significantly down from 71% at the start of 2025 and marks a worrying trend of declining business optimism.

The findings, based on a tracking study of 1,000 small business owners across the UK, come just weeks after Novuna revealed that only 26% of enterprises are currently forecasting any growth – another four-year low. For the first time in over a decade, the Novuna data shows a simultaneous fall in both growth forecasts and proactive planning, suggesting deep-rooted concerns within the SME sector.

Sharp sector-specific declines underline the scale of the shift. In the manufacturing sector, the proportion of businesses pursuing new growth initiatives fell from 83% in Q1 to 69% in Q2. Similar drops were seen in transport and distribution (down from 76% to 73%), real estate (from 72% to 44%), and media (falling from 86% to 61%).

The decline in the real estate sector is particularly notable, with activity almost halving over the quarter.

Among those still pursuing initiatives, the focus has clearly shifted from growth to resilience. The most commonly adopted actions included keeping fixed costs down (58%), improving cash flow (31%) and tackling late payment (25%).

Only a minority of businesses are engaging in more expansionary activity, including hiring more staff (17%), investing in new machinery/equipment (16%), expanding into overseas markets (16%), reassessing finance commitments (13%), and streamlining supply chains (9%).

This defensive posture indicates that many small businesses are bracing for prolonged economic headwinds rather than preparing to scale.

Joanna Morris, Head of Insight at Novuna Business Finance, said the findings reflect a broader dip in sentiment: “After the surge in small business confidence this time last year, there has been a slide in the percentage of business owners predicting growth for the last four quarters.

“In parallel, the fall in the percentage of small businesses offsetting this by working on new projects to unlock future growth potential is a concern.”

She pointed to geo-political instability, rising operational costs, and anticipated tax hikes as the main factors eroding small business confidence.

However, there are some silver linings. “One positive take from this quarter’s findings is an upturn in the percentage of small businesses using this uncertain period to reassess their finance commitments to free up working capital,” Morris added.