UK small businesses struggle as sales and jobs slow for a third consecutive quarter

London — July 30, 2026 — UK small business sales growth slowed for the third consecutive quarter in the three months to June, and hiring growth remains subdued hitting a six month low, according to the latest Xero Small Business Insights (XSBI) data from Xero, the global small business platform.

Anonymised and aggregated data from 440,000 UK small businesses using Xero suggests higher fuel prices and continued economic uncertainty are weighing on business confidence and putting pressure on household budgets and discretionary spending. As a result, many small businesses remain cautious about hiring and investment.

Sales growth continues to slow

Sales growth slowed again to 3.6% year-on-year (y/y) in the June quarter, down from 4.2% y/y in the March quarter and 5.5% y/y in the December quarter, marking the third consecutive quarterly slowdown. Sales growth is now well below the historical average of 8.5% y/y.

Sectors like hospitality (-0.5% y/y), retail (+2.0% y/y) and arts and recreation (+3.2% y/y) continued to be some of the worst performing, despite the warm weather in June. Agriculture, a new sector included in XSBI, was the weakest performer, with sales falling 8.6% y/y after prolonged dry conditions and concerns over wheat quality put pressure on the industry.

Construction continued to perform slightly above the national average (+4.6% y/y), while transport and logistics recorded the strongest sales growth at 8.2% y/y, reflecting higher freight prices driven by fuel costs.

Hiring falls as confidence drops

Jobs growth slowed to 1.7% y/y in the June quarter, down from 2.4% y/y in the March quarter. This marks the slowest hiring pace since the December quarter 2025.

Healthcare (+3.8% y/y), real estate services (+3.5% y/y) and retail (+3.5% y/y) recorded the strongest employment growth during the quarter. In contrast, hospitality (-0.7% y/y) and information, media and communications (-0.2% y/y) employed fewer people than a year earlier.

"Things aren’t improving for our small business economy, which should be a real wake-up call for the new Labour government,” said Kate Hayward, UK Managing Director, Xero. “Even the warmer weather in June hasn’t given our retail and hospitality sectors the boost they so desperately needed. We’re seeing businesses holding back on hiring and growth, and all of this pressure is being compounded by payment times creeping up and rising fuel costs. It’s not sustainable.”

"The Autumn Budget is shaping up to be a real test for the new government to show they are listening and backing their pro-small business rhetoric. We need policies that restore small business confidence, improve cash flow and create the conditions to invest, hire and grow. We’ll be continuing to push for this."

Kyle Hyams, Owner of Orlas Coffee & Gelato and Aoifes Gelato said; “Staff costs and the cost of goods have never been higher for our three businesses, so we’re constantly weighing up whether to reduce our team and the quality of what we sell, or hold our nerve and hope conditions improve. For now, we’re holding steady. We’ve watched well-established businesses close this year, but we’ve managed to open two new sites and have taken on a lease to renovate a third site. But we’re really depending on a strong summer to fund this.”

“We provide income to 50 people employed across our businesses, but the support for businesses that are improving their communities isn’t there. We’d love to see some control on food prices, a cut in VAT for hospitality, and grants or government-backed loans would make a real difference right now.”

Payment times edge up as businesses hold onto cash

The average time small businesses waited to be paid after issuing an invoice increased to 29.1 days in the June quarter, up from 28.8 days in the March quarter, although slightly better than the 2025 average of 29.3 days.

Businesses were paid an average of 8.3 days late in the June quarter, compared with 8.0 days in the March quarter.

Although payment times are still relatively stable, the increase in the June quarter suggests businesses are holding onto cash for a little longer. Longer payment times can create a cycle of cash-flow pressure, making it harder for small businesses to manage day-to-day costs.

Elsewhere, small business wages grew 2.8% year-on-year (y/y) in the June quarter and have remained around 3% y/y for more than a year.

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 | Hannah Collett | ukpress@xero.com

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