Small business sales growth reached 18-month low between October and December 2025

London – 26 February 2026 – UK small businesses sales were resilient in 2025, but momentum faded towards the end of the year, according to the latest Xero Small Business Insights (XSBI). Anonymised and aggregated data from 440,000 UK small businesses using Xero, the global small business platform, shows 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 just 3.2% y/y, the smallest rise in 18 months.

Year-end slowdown leads to cautious 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.

“After a steady start, small businesses finished the year feeling the pinch from rising costs and lower demand,” said Kate Hayward, UK MD, Xero. “This has led many to hit pause on hiring and investment decisions until economic conditions improve. The Spring Statement presents an opportunity to break this cycle. Small businesses will be hoping for an improved outlook and measures that ease the pressure on the bottom line so they have the confidence to invest and grow.”

High-street squeezed as wage bills rise but sales fall

The final quarter proved challenging for small businesses on the high street, with many preparing for a festive boost that failed to materialise. 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 at a record low since 2017

Despite slowing sales growth, small businesses are getting paid faster. In the final quarter of 2025, small businesses waited an average of just 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.

“Towards the end of 2025, we noticed customers were spending cautiously but paying quicker,” said Debbie Williams, co-owner of John Williams Heating Services in Chippenham. “Being paid on time makes a huge difference to cash flow for a family-run business like ours. We’ve been trading since 2004, so we know each year will bring both challenges and opportunities but there is steady demand for heating services, so we feel cautiously optimistic about sustaining growth in 2026 .”

You can find the latest Xero Small Business Insights UK Update here. To find out more about how Xero Small Business Insights is constructed, see the methodology.

Media Contact

Xero Communications UK | Sophie Whitney | ukpress@xero.com

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