Quarter 4, 2025
Infographics SBI Q4 2025
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Confidence drops over 12 points to lowest level since the start of the pandemic
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Over a quarter
of small businesses (26%) decreased their staff numbers in the last quarter, the highest this value has been in over 10 years
Over a quarter
of small businesses (27%) have seen costs increase by more than 10% compared to the same period last year
Over a third
of small businesses (35%) expect to contract, sell up or close over the next year, while only one in five (21%) expect to grow
FSB Foreword
2025 will not go down in most small business owners’ memories with much of a golden glow. The year ended with a final quarter’s survey marked by unwelcome records of all kinds, from the highest ever proportion of small business owners and self-employed people predicting that they will close, downsize, or sell their business within the next 12 months (34.6%), to the highest ever percentage reporting that their revenues fell over the quarter (56.5%, marginally higher than the 56.2% recorded in Q3 2020 in the midst of lockdowns). That over half of small businesses (53.5%) expect their revenues to shrink in the next quarter is yet another extremely unwelcome indicator.
The drop in sentiment over the course of last year, from an already very low -40.7 points in Q1, via -44.1 in Q2 and -58.1 in Q3, to Q4’s -70.6, is a dismal set of results. With economic growth only weakly positive over 2025 as a whole, it is worth asking why it is small businesses that seem to have borne the brunt of the financial pain, as evidenced by our research. It is small firms, with their much greater capacity to grow and fill the niches of the future, who will be integral to the UK’s economic recovery, so their deepening gloom and lack of faith in that very future ought to be ringing a very loud alarm in the corridors of power.
Recent changes to taxation must be regarded as one of the main drivers in this collapse in sentiment and financial health. It is cited by a record proportion of firms – nearly two in three (63.6%) – as a driver of cost changes; up until 2025, taxation had never been above third place as a factor behind cost changes, but in the last three quarters it has been the top-ranked factor, showing the speed with which concern around tax has shot up within the small business and self-employed community. Similarly, over two in five (45.3%) small businesses cite the tax burden as a barrier to growth, behind only the domestic economy (69.6%).
The Government has to deliver on its enthusiasm for helping small businesses, self-employed people, and limited company directors to thrive. The changes it has made to taxes like National Insurance, business rates, and dividend tax, and its decision to freeze tax thresholds are having the double effect of reducing small businesses’ margins and depressing consumer confidence. To raise living standards and overhaul creaking national infrastructure, the Government needs to get growth properly motoring again, instead of raising taxes to fill the gap in the country’s finances caused by an economy in the doldrums, which in turn hits growth ahead of the next
Budget, with the risk of spiralling into an ever downward economic loop.
The upcoming Spring Forecast in early March is the next opportunity for the Government to turn around small business confidence, especially after its disastrous decision at the Autumn Budget to apply only a minimal level of business rate relief to thousands of small firms in England, which for many will mean bills rising sharply at a time when the trading environment is grim. Many small firms in Wales, Scotland and Northern Ireland are also staring at rising rates bills. The King’s Speech must also include measures to offer real help to small firms, including a Late Payment Bill to end once and for all this scourge on small firms’ ability to manage their cashflow, building on last summer’s Small Business Plan.
Many costs will increase sharply in April, from the National Living Wage to standing charges on energy bills. Our research shows starkly that the small business community is not in any shape to cope with this ticking timebomb of cost increases. Small businesses’ prospects look worryingly fragile.
The human cost of these numbers is devastating. Small business owners who have spent years building something stable are now being forced to make painful decisions, putting growth on hold simply to stay afloat, amidst a system that is making employment and investment increasingly difficult to sustain. The risk that a decline in employment among small businesses – with the proportion of small businesses reporting that they reduced the number of staff in the last quarter also the highest it has ever been, at over a quarter (26.0%) – feeds into and worsens economic gloom, as well as causing huge, avoidable damage to people’s lives.
Policy choices have made growth unaffordable –the Government must recognise this, and zero in on growth, so we can expand our community back to pre-COVID levels of 6 million small firms. Small businesses always show remarkable resilience in times like these, adapting time and time again in the face of sustained pressure, but resilience alone cannot offset policies that keep pushing costs higher.
Tina McKenzie, Policy Chair
Small Business Index
Small Business Index indicates worsening sentiment heading into 2026
The Small Business Index (SBI) fell from -58.1 in Q3 2025 to -70.6 in Q4 2025, the lowest confidence level among small businesses since the pandemic and the secondlowest on record. The decline in sentiment among small businesses points to a pessimistic outlook for the start of 2026.
Throughout 2025, small businesses have faced sustained pressure from the weak economic environment, which has weighed on profitability and confidence. Against this backdrop, the Autumn Budget appears to have fallen short of restoring optimism. The announced policy mix suggests that small businesses will continue to face elevated cost pressures, including a further increase to the minimum wage and an extension to the freezing of employers’ National Insurance contribution thresholds. At the same time, the weak growth outlook for 2026, reinforced by
more recent GDP growth data, has done little to alleviate concerns. As a result, the deterioration in sentiment this quarter reflects continued anxiety over business prospects in the near term.
Other SBI indicators reinforce this deteriorating sentiment. The net balance of firms reporting an increase in revenues reached a series low and the share of small businesses planning to downsize, close, or transfer ownership over the next 12 months reached a record high of 34.6%. Meanwhile, 2025 has been a year of persistently high cost pressures, and the latest quarter was no exception. The net balance of small businesses reporting an increase in operating costs rose to 81.6% this quarter, with taxation and labour costs cited as the top sources of changing business costs.
Figure 1: The FSB Small Business Index:1 Small business prospects over coming three months
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
1 The Small Business Index is a weighted index of the responses to the question: ‘Considering your overall business performance, and ignoring any normal seasonal variations at this time of the year, how do you view business prospects over the next three months, compared with the previous three months?’ The share of firms reporting are given the following weightings: ‘much improved’ +2; ‘slightly improved’ +1; ‘approximately the same’ 0; ‘slightly worse’ -1; and ‘much worse’ -2; the Small Business Index is derived from the sum of these factors.
Figure 2: Year-on-year change in the FSB Small Business Index, rolling four-quarter average
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Figure 3: UK SBI against year-on-year UK GDP growth2
Source: ONS, FSB - Verve ‘Voice of Small Business’ Panel Survey
Regional Small Business Index
Broad-based decline in sentiment across the UK
In Q4 2025 the Small Business Index (SBI)3 declined compared with the previous quarter in all but one region of the UK, a signal of broad-based pessimism towards nearterm business prospects.
The widespread worsening of sentiment among small businesses reflects persistent cost pressures, as well as the impact of the Autumn Budget, released in the middle of the quarter. Ahead of its release in November, there was much speculation surrounding new tax measures and the implications for business costs and consumer spending, with this uncertainty likely weighing on market sentiment. While the Government ultimately opted to back-load
several of the headline tax measures, there were few significant growth and investment-stimulating measures. Businesses may now have a clearer picture of the nearterm fiscal landscape, though a lacklustre growth outlook continues to cast a shadow over business sentiment.
Only the North West recorded an improvement in sentiment, with the SBI rising by 6.4 points, a relatively modest increase. Looking ahead, falling inflation and the prospect of further rate cuts by the Bank of England may help to improve investment conditions and provide some support to business sentiment. For now, however, sentiment remains unanimously negative.
Figure 4: FSB Small Business Index – Regional variation in small business prospects over the coming three months
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Sector Small Business Index
Outlook for business prospects continues to worsen for most industries
Across all sectors, the SBI remained firmly in negative territory in Q4 2025. Sentiment declined in all sectors apart from manufacturing, which posted a marginal gain of 0.9 points. The index has now recorded seven straight quarters of unanimously negative sentiment across the sectors, reflecting entrenched pessimism across the economy.
Construction, wholesale and retail trade, and accommodation and food services registered the largest declines relative to last quarter, of 25.5, 22.2 and 15.5 points respectively.
In Q4 2025, sentiment in the UK hospitality industry was likely weighed down by concerns over Autumn Budget
measures, such as planned changes to business rates and above-inflation minimum wage rises, which were seen as further fuelling cost pressures on already marginal operators, and squeezing their cash reserves.
However, a recent Government U-turn, a softening on business rates for pubs and hospitality venues, and proposals to ease licensing rules and expand permissions for pavement drinking may go some way to help lift sentiment in the sector, particularly with industry groups signalling that reduced regulatory and tax burdens could improve conditions in early 2026, but there is still a high level of concern from the parts of the hospitality industry that is not covered by these changes.
Figure 5: FSB Small Business Index by sector – small business prospects over the coming three months Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Revenue Performance
Revenue performance falls to a new low in Q4 2025
The net balance of small businesses reporting revenue growth in Q4 2025 fell to a new low of -34.9%. The negative balance indicates that substantially more businesses reported a decrease in revenue than an increase. Throughout Q4, below-trend domestic demand likely drove the weak revenue performance. Household spending continued to be held back by poor consumer confidence. This is corroborated by the latest YouGov/ Cebr Consumer Confidence Index, showing increased pessimism around household finances. Consumer spending may have also been constrained by heightened uncertainty ahead of policy announcements in the Autumn Budget.
Looking ahead to Q1 2026, the net balance of small businesses expecting revenue growth is -34.3%. The continued negative outlook on revenue performance may have been influenced by recent labour market developments that are expected to weigh on consumer spending, including rising unemployment and slowing wage growth. Therefore, small businesses’ outlook over near-term revenue prospects is cautious.
Figure 6: Small business revenue, net percentage balance (i e Proportion reporting/expecting increase in revenues over the past/next three months less proportion reporting/expecting decrease)
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Net balance of businesses reporting an increase in revenue - last three months
Net balance of businesses expecting an increase in revenue - next three months
Exports
Export performance remains weak,
but sees
some improvements in Q4
In Q4, the net balance of exporting businesses reporting growth in the value of their exports was -19.8%. This reflects an 11.8 percentage point improvement from Q3 2025, and is corroborated by the latest Purchasing Managers’ Index (PMI) which reported an increase in export sales pipelines.
On balance, the outlook remains negative, with 44.2% of exporting businesses reporting a fall in the value of their exports, compared to 24.4% seeing export value increase. In particular, the wholesale and retail trade sector reported weak export performance this quarter with 73.0% of
businesses reporting a decrease in the value of exports, compared to only 13.5% reporting a rise. As a large goods-exporting industry, small businesses in this sector are particularly exposed to weak foreign demand and the impacts of US tariffs.
Looking ahead to the next three months, the net balance of exporting businesses expecting growth in the value of their exports stands roughly stable at -20.2%. Small businesses remain sensitive to weak global demand conditions, particularly from major trading partners in the EU.
Figure 7: Changes in value of exports over the previous three months and expectations for the coming three months; net percentage balance (proportion reporting increase, less proportion reporting decrease)
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Net balance of exporters reporting growth, past three months
Net balance of exporters expecting growth, next three months
Costs and Inflation
High tax burdens and employment costs keep operating costs elevated
The net balance of small businesses reporting an increase in operating costs rose to 81.6% in Q4 2025. Cost pressures continue to weigh heavily on small businesses, with taxation being the most frequently-cited source of cost changes compared with the same period 12 months ago, followed by labour costs. These costs have partially reflected policy changes. Since April 2025, firms have felt the impact of changes to employers’ National Insurance contributions. Small businesses are particularly impacted by these costs as they typically lack pricing power and have tighter cash flows, limiting their ability to pass on higher costs to consumers without risking damaging demand, while they are often more labour-intensive.
Despite cooling labour market conditions and a slowdown in hiring, labour costs remain elevated. This is in part due to persistently weak productivity growth alongside strong
nominal wage growth, which have together raised the per-unit cost of labour. Looking ahead, further planned increases to the National Minimum Wage in April 2026 and the extended freeze on employers’ National Insurance contribution thresholds suggest that small businesses will continue to face elevated employment costs over the medium term.
Elsewhere, utilities was the next most commonly-cited source of cost changes, cited by 47% of the sample, followed by input costs (33%). The latest inflation data for producer price inflation (PPI) indicated that price growth increased on the month between November and December,4 highlighting that small businesses have continued to feel the pressures of rising input costs this quarter.
Figure 8: Small businesses reporting an increase in overall cost of operation over past three months, compared with the same period a year ago; net percentage balance
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Figure 9: Main causes for changing business costs*
*Firms may give multiple answers
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Employment Employment outlook slumps to record low
Q4 2025 saw the net balance of changes in employee headcount drop to the lowest level on record, at -20.9%. Within this figure, 26.0% of small businesses reported a contraction in their workforce over the quarter. This marks the fifteenth consecutive quarter of small businesses reporting a net reduction in headcount, and the lowest score on record for this measure.
Data from the Office for National Statistics (ONS) corroborates the net workforce reduction reported in the Small Business Index. Early estimates for December 2025 indicate that the number of payrolled employees fell by 0.6% compared to December 2024, and 0.1% compared to November 2025.5 In terms of drivers of these trends, labour costs rose considerably at the beginning of Q2, due to the hikes in employers’ National Insurance contributions
and the National Minimum and Living Wages, remaining elevated since.
These policies are likely to have a lasting impact on hiring amongst small businesses, feeding through to continually negative expectations. Over a fifth (22.7%) of small businesses foresee a reduction in headcount in Q1, compared to 7.0% expecting an increase, for a net of 15.7%, with costs showing no signs of falling and another real-terms raise to wage floors incoming for April 2026, as announced in the November Budget. Consumer demand, which has been especially weak through the latter stages of 2025, may also influence the outlook, although with inflation falling, this may be offset by monetary easing early in the new year.
Figure 10: Net percentage balance change in number of people employed – proportion reporting increase, less proportion reporting decrease
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Growth Aspirations and Challenges
Growth expectations continue to hit new lows in Q4
Q4 2025 saw the share of small businesses planning to downsize, close, or transfer ownership over the next 12 months rise above the already record high reading in Q3 to 34.6%. This also represents the third consecutive quarter in which a new record low for the net balance of firms expecting to grow has been set, now at -13.3%.
The previous quarter was largely characterised by high levels of uncertainty surrounding the November Budget. With these policies now clear, there has been a small 3.2 percentage point uptick in the number of firms expecting to grow. However, this has been outmatched by a 4.2 percentage point rise in the number of firms expecting to downsize, close, or transfer ownership. This is in light of a Budget which, while backloading many of its planned
Figure 11: Growth aspirations for next twelve months
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
tax rises for the end of this Parliament, has not outlined policies that could be expected to inspire growth over the coming year.
Construction, the wholesale and retail trade, and accommodation and food services were the industries with the least optimistic growth prospects for 2026. A common theme across these industries is that they rely heavily on low- and minimum-wage workers. This leaves them disproportionately exposed to changes in wage floors, which are due to rise in 2026. Prospects for consumer demand given rising unemployment and weak real earnings growth are also muted, putting pressure from both sides on growth aspirations in these industries.
Employment cost concerns rise following the November Budget
Small businesses cited the state of the UK economy as a barrier to expansion more frequently than any other factor in Q4. This follows continually underwhelming GDP data coming from the ONS. Official statistics state that the UK economy grew by 0.1% in the three months to November ,6 with Cebr expecting growth for 2025 to come in at 1.4%.
An update to the outlook from Q4 has been substantial easing to the UK’s CPI inflation rate, although it is still above the Bank of England’s target of 2.0%. This partially reflects the continued easing of consumer demand in a UK economy that cooled significantly over 2025.
There was a significant rise in the proportion of businesses reporting labour costs as a barrier to achieving growth aspirations. Beyond changes to the minimum wage, labour cost concerns will also be driven by the Government’s intervention in the labour market. The Employment Rights Act is expected to phase in new compliance requirements, such as the right to guaranteed hours contracts, as well as unpaid parental and bereavement leave from day one. While not necessarily a net negative for the UK economy, these additional interventions are highly likely to result in raised labour costs for small businesses, which may limit opportunities to grow.
Figure 12: Potential barriers to achieving growth aspirations*
* Respondents could select multiple answers
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Credit
Credit market improvements offer hope to struggling small businesses
Figure 13: Credit applications and interest rates offered
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Q3 2025 Q4 2025
The Bank of England base rate held steady at 4.0% for most of Q4 before a 0.25 percentage point cut in December. While this remains significantly elevated over pre-pandemic levels, there are signs that the credit environment is becoming more permissive for small businesses. Firstly, the proportion of firms that reported applying for credit rose by 3.1 percentage points from Q3. The proportion of firms that were successful in their application also rose significantly, up 10.6 percentage points from Q3. These may in part be additional delayed benefits from the expansion of the British Business Bank’s total financial capacity in June.
Compared to Q3, the proportion of firms at either extreme of the range of interest rates (greater than 11.0% or less than 4.0%), fell noticeably. As the increase in applications and acceptances points to a credit market that is more active, this tightening of the interest rate distribution may reflect a reduction in perceived risk. This may be an area in which the November Budget has succeeded. Q3 saw bond markets pricing in considerable uncertainty following a downgrade to the OBR’s productivity forecast that implied adverse consequences for the Chancellor’s fiscal rules in the Budget. The announced policies, while unlikely to inspire growth directly, were widely accepted to have appeased a skittish bond market and reduced the UK’s risk premium, with the result being a tightening of interest rate spreads and more available credit for small businesses.
14:
small businesses successful in their credit applications in the past three months
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Figure
Proportion of
Net credit perceptions still negative, but improve significantly in Q4
When respondents were asked how they rated the affordability and availability of credit, the net balance of responses was still firmly negative. However, Q4’s reading showed an improvement over Q3. The proportion of firms viewing the credit environment as ‘quite poor’ or ‘very poor’ fell by 8.2 percentage points to 45.7%, while the proportion of firms with ‘quite good’ or ‘very good’ perceptions rose by 4.7 percentage points to 14.7%.
This supports the view that credit conditions are starting to ease for small businesses. Cebr also anticipates additional interest rate reductions in 2026, which may further improve access to affordable credit, an essential tool for small businesses to grow.
Figure 15: Index of credit perceptions over time, a weighted net balance of those with negative responses subtracted from those with positive responses
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Capital investment plans signal confidence crisis
The net balance of small business investment intentions fell by 8.8 percentage points to -23.8% in Q4, marking another figure in the Small Business Index that has fallen to its lowest level on record. Future investment intentions amongst UK small businesses are now even lower than they were at the beginning of the pandemic.
Alongside rising geopolitical uncertainty and trade shocks, 2025 also brought adverse changes to the policy landscape for small businesses, with increases to taxes on employment and higher wage floors. A loosening labour market has also weighed on consumption expenditure, putting pressure on small businesses from all angles. The November Budget, through further increases to the minimum wage, imposing various low-revenue distortionary taxes such as the ‘mansion tax’, and freezing tax thresholds, looks to have done very little to improve the UK’s growth outlook at a time when the economy is struggling for momentum. This outlook for the UK
economy in 2026 has been reflected in investment plans amongst small businesses. Even with increasingly available credit, firms are demonstrating that economic conditions are not currently suitable to risk increasing investment expenditure.
As was the case in Q3, all UK regions showed negative net balances of investment intentions, with London as the least negative region. The capital’s net balance of -14.1% made it one of only two regions with a net investment intentions balance above -20.0%. The other such region is the West Midlands, which is more likely a reflection of the region’s recovery following especially poor performance in Q3, driven by the temporary closure of Jaguar Land Rover factories in September following a cyberattack, than a signal of economic strength. The worst performing region in Q4 was the South East, with a net balance of 33.0% between small businesses expecting to reduce business investment vs those expecting to increase it in Q1 2026.
Figure 16: % of small businesses expecting to increase and decrease capital investment over next quarter, compared with the previous quarter
Source: FSB – Verve ‘Voice of Small Business’ Panel Survey
Q4 2025
Q3 2025
Economist’s View
Rather than going out with a bang, the UK economy has ended 2025 with a whimper. The latest data from the ONS shows the economy shrinking by 0.1% in the three months to October, driven by month-on-month contractions in output from the construction and services sectors. While (at time of writing) the remaining two months of GDP data are yet to be released, Cebr expects growth to come in at 1.4% for 2025, signalling that the economy is underperforming compared to historical averages. The November Budget, a cause for much uncertainty in Q3, has done little to inspire optimism for the UK’s growth outlook. Revenue from planned tax increases, many of which are not expected to be implemented until the end of the parliament, has been primarily allocated to the welfare system, rather than to addressing the UK’s chronic lack of investment and other business-related issues.
The Small Business Index reading from Q4 reflects the current headwinds facing the UK economy. Q4 gave the seventh consecutive negative reading, with the SBI falling from -58.1 in Q3 to -70.6. The net balance of small business sentiment is now at its lowest level since the beginning of the pandemic.
A number of readings from the Small Business Index survey hit record lows in Q4, among them the net balances of growth and investment expectations. Q4 saw the share of respondents expecting to downsize, close, or hand on their business rise for the third consecutive quarter. Meanwhile, the net balance of firms expecting to increase investment expenditure over the next quarter was -23.8%, underperforming even the SBI reading from March 2020, the beginning of the pandemic. Finally, the effects of increases to employers’ National Insurance contributions and the National Minimum and Living Wages in April are becoming increasingly evident, both through UK-wide labour market data and the SBI employment outlook. The net balance of the change in employee headcounts for small businesses fell to -20.9%, the lowest on record, following substantial increases in labour costs.
That said, other indicators from the Small Business Survey showed signs of improvement in Q4. The net balance of UK exporters reporting growth in the value of their exports rose by 11.8 percentage points, albeit remaining negative
at -19.8%. Following the announcements of sweeping US tariffs on UK exports, a new trade deal that has gained limited tariff exemptions on certain goods appears to have reduced some of the uncertainty that has plagued transatlantic trade over the past year. Additionally, the announcements made at the November Budget appear to have eased some uncertainty in the UK credit market. While the net balance of credit perceptions in the UK has been consistently negative since 2022, Q4 2025 saw the index of credit perceptions rise by 12.9 points.
Inflation was elevated in 2025, with this primarily coming from cost pressures, considering the sluggish pace of domestic demand growth. However, there are early signs of easing. The reduced proportion of small businesses reporting input costs as a barrier to growth supports this. Meanwhile, a further point of optimism is that lower inflation has created more room for monetary easing, which could lower borrowing costs and stimulate consumer demand. However, the high tax burden and elevated labour and energy costs are still key points of concern for small businesses.
Cebr’s forecasts for the UK economy align with the weak small business sentiment on display in this report. Labour costs are set to rise further in April 2026 with real-terms increases to the National Minimum and Living Wages. This will likely contribute to further slack in the labour market. Demand prospects for the UK are depressed in the face of high uncertainty. Similarly weak demand amongst EU trading partners, combined with trade rebalancing with the United States, are likely to keep downward pressure on export values. With policy changes from the November Budget doing little to inspire optimism, Cebr expects negative sentiment amongst small businesses to prevail well into 2026.
Sam Miley, Head of Forecasting and Thought Leadership, Cebr
Appendix
Summary data table
The Small Business Index weights strong responses (much improved or much deteriorated conditions) double and subtracts the weighted proportion of firms reporting deterioration in business prospects over the coming three months from the weighted proportion expecting an improvement.
The employment and revenue indicators are net percentage balances, with the proportion of firms reporting a decrease subtracted from the proportion reporting an increase.
Responses are also weighted according to regional gross value added.
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