British small businesses face ‘challenging months ahead’ as sales growth slows to two-year low

London – 30 April 2026 – UK small businesses experienced a challenging start to 2026, 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 found that sales rose just 2.9% year-on-year (y/y) in the March quarter (January to March), marking a slowdown from 5.2% y/y in the December quarter (October to December).

Retail and hospitality hit the hardest

The weakness in sales was concentrated in the first two months of the quarter, with sales growing by just 1.4% y/y in January and 2.4% y/y in February, with some improvement in March.

Sectors relying on discretionary spending struggled the most. Retail (+0.5% y/y) and hospitality (+1.4% y/y) small businesses recorded growth well below the national average in the March quarter, reflecting ongoing pressure on consumer demand. By contrast, less consumer-sensitive sectors like professional services (+4.7% y/y), healthcare (+4.6% y/y), and manufacturing (+4.6% y/y) experienced more positive growth.

March showed some improvement, with sales growth reaching 5.0% y/y – however, this remained below the long-term average of 8.5% y/y. The latest CPI data shows prices paid by consumers rose at the fastest pace in almost a year in March, at 0.7% m/m. However, this was almost entirely due to petrol prices (+2.4% m/m).

“January and February are typically more challenging months for us, and this year the persistent wet weather made trading conditions even tougher,” said Scott Peacock, a Director at Stables Coffee Co. “Despite that, we’ve seen steady demand overall and have performed better than expected so far this year. Like many small businesses, we’ve had to make some adjustments in recent months, including putting our prices up in response to increases in the minimum wage and other rising costs. Looking ahead, we know it’s still a difficult environment, with protecting cash flow and managing margins being key, but we’re in a good place to adapt and feel cautiously optimistic about the months ahead.”

Hiring and wages show modest recovery

Small business jobs growth continued to recover in the March quarter, but remained below the long-term averages. Jobs rose 2.1% y/y, up from 1.6% y/y in the December quarter. The retail industry maintained the momentum it gained in the festive period, up 3.3% y/y. Growth in both construction (3.1% y/y) and real estate services (3.0% y/y) also showed some resilience in labour demand.

There were also encouraging signs with wage growth increasing by 2.9% y/y in the March quarter, up from 2.7% in the previous quarter. However, the hospitality sector continued to face problems attracting workers to the sector, recording the strongest wage growth (3.7% y/y), but failing to translate this into stronger hiring and sales.

“There are challenging months ahead for small businesses,” said Kate Hayward, UK Managing Director, Xero. “Margins are squeezed by energy and finance costs, and owners are naturally responding with caution. This is encouraging more ‘wait and see’ behaviours, where they delay hiring or expansion, stall investment in new premises or equipment, and favour casual work over permanent hires. The government must step up and really listen to small businesses, who don’t feel heard.”

Time to be paid remains stable

Despite challenges elsewhere, small businesses are seeing stable payment times. On average, small businesses were paid in 29.0 days, broadly unchanged from 29.1 days in the December quarter. Similarly, late payments remained stable with invoices paid 8.2 days late on average compared to 8.1 days previously.

This is helping to protect small business cash flow when they are already facing so much. With the UK government also stepping up efforts to tackle late payments, there is potential for further improvement in payment performance in the months ahead.

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.

-ENDS-

Media Contact

Xero Communications UK | Hannah Collett | ukpress@xero.com

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