Britain’s small and medium sized businesses are showing resilience. New data from Sage, the leader in accounting, financial, HR and payroll technology for SMEs, shows that revenues and profits are rising despite a difficult economic and political backdrop. However, many firms are still holding back on hiring and investment as they wait for greater stability.
Drawing on data from more than 350,000 SMEs, the first Sage SME Pulse, a regular measure of Britain’s small business health, points to a picture of cautious momentum following 2025. Revenues are up. Profits are at a four-year high. And firms that have worked hard to control costs and improve efficiency are beginning to see the benefit.
Conditions in the UK have started to stabilise, with interest rates having fallen and no new taxes announced in the Spring Statement. But global uncertainty continues to make planning harder for business owners.
“The message for 2026 is cautious momentum. Hiring is close to flat, but now is the time to rebuild productivity and resilience” said Steve Hare, CEO of Sage. “Businesses need to stay disciplined today while getting ready to grow tomorrow.”
“The year ahead will depend on lower finance costs, easing labour pressures, and making the most of AI to improve productivity” Hare added. “The SMEs that protect cash flow while investing carefully in skills, retention and technology will be best placed for recovery.”
The SME Pulse is available to read in full at the following link: Sage 2026 SME Pulse.
Key findings (FY 2025)
- Real revenues rose 3.3% year-on-year, ahead of a UK economy that grew by 1.0% over the same period
- Profits rose 6.2% year-on-year, reaching their highest level since Q1 2022
- Headcount up by just 0.2% year-on-year in February, while median earnings rose 5.3% although pay growth slowed compared with a year earlier
- Spending up rose 2.1% — showing that tight cost control is helping drive productivity.
What policymakers should do now
SME resilience should not be taken for granted. Policymakers should focus on creating the conditions for firms to hire, invest and grow, while staying ready to respond if global conditions worsen.
- Better tax relief for digital and AI tools that improve productivity
- Stronger AI skills support through the Government’s AI Skills Boost, with a focus on reaching 10 million workers by 2030.
- More support for entrepreneurship through education, advice, and simpler, more digital tax compliance for startups
Resilient in a difficult environment
UK SMEs increased real revenues by 3.3% year-on-year in Q4 2025. That is a strong result against a backdrop of continued uncertainty and weak consumer and business confidence.
The latest Office for National Statistics data shows the UK economy grew by only 1.0% year-on-year over the same period, underlining the resilience of smaller businesses. ONS figures show growth came from production, while services were flat and construction declined.
Profits at a four-year high
Profits grew by 6.2% at the average SME over the year to end of 2025, up from 5.5% in Q3 and at the highest level since Q1 2022.
Many SMEs took a “wait and see” approach ahead of the Autumn Budget. But earlier efforts to control costs, improve efficiency and invest in innovation are now paying off. Rising profitability suggests owners and managers are finding smarter ways to run their businesses, from tighter cost control to better use of automation and AI.
Headcount, pay and productivity
In an uncertain environment with labour costs still high, SMEs remain cautious about hiring. Headcount saw only a slight improvement in February 2026 (+0.2%), comparted to November’s -0.1%.
The Pulse also reveals a shifting workforce: over-65s now comprise 5.1% of SME employees (up from 1.8% in 2022), while under-18 employment has fallen.
Median gross earnings rose 5.3% year-on-year in January, down from 7.7% a year earlier, but. At the same time, average productivity fell 2.6% in Q4 2025. Measured as real revenue per employee, this shows the need for firms to turn hiring caution into stronger output, particularly as AI begins to reshape routine roles.
Costs and investment
Real expenditure grew by just 2.1% in the year to Q4 2025, down from 4.5% in the previous quarter. Revenue growth outpaced spending, helping support profits.
SMEs still face pressure from the labour market ahead of April’s National Minimum Wage rise, but lower inflation and falling interest rates are providing some relief.
Capital expenditure fell 17.4% year-on-year, marking the 17th consecutive quarter of decline, as businesses continue to prioritise caution in the face of uncertain demand.
Regional picture
The Pulse reveals shows clear regional differences across the UK.
Median earnings grew fastest in Wales +6.4% compared with the national figure of 5.3% for January, and slowest in London (+3.8%). SME headcount rose by 0.6% in both Wales and the South East, while London and the North East both saw falls of 0.4%.
Profitability grew fastest in the East Midlands (+15.7%) and West Midlands (+10.8%).
London continues to lead on scale-ups, reflecting the depth of its labour and capital markets. The South East benefits from its links to Oxford, Brighton, and Reading. While Yorkshire and the Humber gains from Leeds’ strength as a financial centre and its lower cost base.
Sector picture
Utilities has the highest concentration of scale-ups, driven by investment linked to the energy transition, where scale helps deliver efficiency. Health and social care follows, supported by an ageing population, while hospitality is seeing consolidation as larger firms take share in a more difficult cost environment.
Pay grew fastest in information and communication (+7.7%), while public administration and defence led hiring (growth at +4.2%). Revenues in education rose 12.4% while accommodation and food revenue fell -0.1%.
Together, these patterns show where growth opportunities are building and where support may be needed most.
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