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While ministers hail G7-leading growth, fresh small business data shows slowing sales, cautious hiring and mounting pressure on retail and hospitality margins.

What’s really going on in the small business economy?

While the Chancellor applauded the UK’s growth in the Spring Statement today, as the fastest in the G7, Xero (the cloud accounting software company) published its Small Business Insights data for the December quarter. The rhetoric and reality are slightly at odds.

Xero uses anonymised and aggregated data to produce quarterly insights on the state of small businesses in the UK. It has around 1.2 million customers from which to gather information. The latest ‘Insights’ includes figures for the final months of 2025 and provides important context on some of the challenges facing the small business sector.

Here are the headlines:

Sales

• UK small business sales were resilient in 2025, but momentum faded towards the end of the year – sales rose 4.7% year-over-year (y/y) in 2025, slightly up from 4.4% in 2024. However, growth slowed in the final quarter (October – December) with sales increasing to 3.2% y/y, the smallest rise in 18 months. (This has not been adjusted for inflation).

Hiring

• It was a mixed picture for the labour market in the December quarter too. Jobs growth edged up to 1.7% y/y, but that was half of the long-term average (3.4% y/y), a sign that small businesses remain cautious about hiring.
• Wage growth also eased slightly to 2.7% y/y, down from 3.0% y/y in the previous quarter.

Sector analysis – hospitality and retail

• The final quarter proved challenging for small businesses on the high street. In retail, jobs growth was more than double the national average at 3.8% y/y, yet sales fell by 0.7% y/y.
• Hospitality faced a similar squeeze. Sales growth dropped from 5.1% y/y in the September quarter to 0.7% in the December quarter, while hourly wages climbed 3.6% y/y.
• This combination of higher wages and weak sales growth is likely to have compounded pressure on already tight margins during the high street’s most important trading period of the year. In contrast, healthcare (5.3% y/y), professional services (5.3% y/y) and construction (4.8% y/y) led sales growth.

Time to be paid

• Small improvements in the time it takes for small businesses to be paid. In the final quarter of 2025, small businesses waited an average of 29 days to be paid. Payment times have now remained below 30 days for 14 consecutive months, strengthening cash flow at a time when many small businesses are navigating lower demand.

The full data sets are published on the Xero website. There is reason for cautious optimism in the payments data. However, it’s increased sales and hiring the small business sector really wants and we need another Government U-turn on National Insurance contributions and other taxes on small and micro businesses if that’s to be realised. In the meantime, it will be interesting to see what the next quarter’s Small Business Insights show if the economic situation is negatively impacted by the situation in the Middle East

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