The next 12 months could see a significant contraction within the small business and self-employed community, according to sobering new research by the Federation of Small Businesses (FSB).
In the second quarter of this year, the proportion of UK small firms who expect to grow over the next year reached its lowest ever point in the history of FSB’s Small Business Index, going back to the end of 2014.
Just over one in six 18% anticipate growth, but they are comprehensively outweighed by the nearly one in three small businesses 32% who expect to shrink, sell up, or close entirely over the next year. In the South East, 20% expect growth, while 35% predict to shrink, sell up or close.
The gap between firms that predict growth over the next year and those who predict shrinkage, a sale, or closure is at its widest ever extent, with a net balance of -14 per cent, compared to -13 per cent from Q4 2025. The net balance turned negative for the first time this time last year, but has stayed firmly below zero ever since. In the South East the figure stands at -15%.
Small businesses in the South East pointed to the domestic economy 65%, the tax burden 40% and consumer demand 32% as the leading factors which they believed would act as a brake on their growth over the next year.
Revenues slow down in second quarter
Revenue performance among small businesses was very subdued in the second quarter, with just one in five small firms in the South East 26% reporting an increase in takings over the past three months. They were significantly outnumbered by the over half of small firms who reported a fall in revenues 54%.
Looking to the coming quarter is a similarly gloomy picture, with under a quarter of small firms 25% predicting that their revenues will rise, while over twice as many 49% believe they will fall.
Cost pressures increased in the second quarter, with the proportion of small businesses reporting higher running costs when compared with the same period last year rising from 86 per cent in Q1 to 89 per cent in Q2.
Taxation was the most-cited driver of cost increases, at 64 per cent, followed by fuel at 52 per cent, labour at 50 per cent, and inputs at 43%.
FSB is calling on the new Government to place small business growth at the centre of its economic agenda. Priority areas include reducing the tax and regulatory burden, reforming business rates, tackling late payments through the Commercial Payments Bill, and implementing policies that reduce costs and encourage business investment and growth.
Overall, the findings suggest that many small businesses in the South East remain under considerable financial pressure, with confidence, revenue expectations and growth prospects all at exceptionally low levels. The survey highlights the importance of targeted policy interventions to improve the operating environment for the UK’s small business community.