United Kingdom Small Business Insights

Sales momentum eases in June quarter

Published: 31 July 2025

Xero Small Business Insights (XSBI) data for the UK shows sales grew above 5% year-on-year in the second half of 2024 and in early 2025 but lost momentum in the June quarter. This slowdown is disappointing, nevertheless sales have continued to grow despite heightened uncertainty around the global and UK economies.

Sales in small businesses grew 2.3% year-on-year (y/y) in the June quarter, less than half the pace seen in the March (5.5% y/y) and December (5.1% y/y) quarters. The long term average growth rate for this series is 8.7% y/y, meaning even the earlier quarterly results were not strong by historical standards. After a reasonable start to the year in January (+5.5% y/y), sales only rose 2.9% y/y in February but were up strongly at 8.0% y/y in March. This was possibly an initial response to the decision by the Bank of England (BoE) to cut the official interest rate in February. Sales were softer again in April (+2.7% y/y) and May (+0.6% y/y) before picking up slightly in June (+3.6% y/y) after another interest rate cut by the BoE in May.

The regional results show all UK regions had a slowdown in sales growth in the June quarter but there was some variation in sales performance across the country. Scotland (+3.3% y/y), East Midlands (+3.1% y/y) and the South East (+2.8% y/y) all recorded sales growth above the national average. In contrast, sales grew only 1.5% in Wales, which was much slower than the 8.1% y/y rise the region recorded in the March quarter. All other UK regions were around the national average result for the June quarter.

The industry results highlight that small businesses dependent on discretionary consumer spending are facing the most challenging trading conditions. Retail sales (-0.6% y/y) was the weakest industry in the June quarter and real estate services have had no growth in sales since the June quarter last year. Hospitality (+1.5% y/y) also continues to record sales growth below the national average, as households have less disposable income to spend at restaurants or on take away. One discretionary spending industry that is bucking this trend is arts and recreation, where sales rose 3.4% y/y in the June quarter. Other industries that performed above the national average include manufacturing (+4.4% y/y), health care (+4.3% y/y), education (+4.1% y/y) and professional services (+3.7% y/y).

Outlook uncertain amid new small business costs and heightened global instability

For small business owners, this data shows that recent months have been more challenging than they were in late 2024 and early 2025. In recent months small business owners have also been dealing with higher levels of employer National Insurance contributions and rises in the National Living Wage. In such circumstances it is more important than ever for small business owners to stay on top of cash flow, ensure they get paid as quickly as possible and keep an eye on costs.

A Xero commissioned poll¹ in June of 600 UK small businesses suggests they are slightly more concerned about the future of their business than they were in May. Three-quarters (76%) of businesses surveyed in June said they were positive about the future of their business, this is down from 81% in May. When asked why they were feeling positive, the key reasons given were having more work available (40%), making more sales (36%) and improved cash flow (34%).

Heightened economic uncertainty is making it hard for UK small businesses to plan ahead. On the one hand, interest rates have been cut by 100 bps so far this cycle, which should give people a little extra to spend in small businesses and should lower business loan repayments. On the other hand, the global outlook has been downgraded and remains uncertain. The UK, unlike almost all other countries, has been able to negotiate limited concessions from the US, mainly around tariffs on cars. Nevertheless, tariffs for exports to the US are still higher than they were before the US changed its approach to trade. The UK's major trading partners in Europe are facing higher tariffs than the UK is. The downgrades in global growth are likely to impact UK growth, and UK small businesses. There are also domestic sources of uncertainty, such as the impending Employment Rights Bill, which could impose new costs and risks onto the shoulders of small business employers.

¹ All figures, unless otherwise stated, are from an online survey commissioned by Xero in June 2025. Responses are among small businesses in Australia (306), New Zealand (152), UK (600) and US (321). Options have been edited for readability.

For more information on the XSBI metrics, see our methodology page.

Disclaimer

This report was prepared using Xero Small Business Insights data and publicly available data for the purpose of informing and developing policies to support small businesses.

This report includes and is in parts based on assumptions or estimates. It contains general information only and should not be taken as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decision.

The insights in this report were created from the data that was available as at the date it was extracted. Data used was anonymised and aggregated to ensure individual businesses can not be identified.