Xero says UK small business sales growth slowed for a third consecutive quarter in the three months to June, while jobs growth fell to a six month low.
The latest Xero Small Business Insights data, drawn from anonymised and aggregated records from 440,000 UK small businesses using the platform, shows sales growth slowing to 3.6% year on year in the June quarter. That was down from 4.2% in the March quarter and 5.5% in the December quarter, and well below the historical average of 8.5%.
Jobs growth slowed to 1.7% year on year, down from 2.4% in the March quarter and the weakest pace since the December quarter of 2025. Xero said higher fuel prices and continued economic uncertainty were weighing on confidence, household budgets, discretionary spending, hiring, and investment.
Hospitality was among the weakest sectors, with sales falling 0.5% year on year, while retail grew 2.0% and arts and recreation grew 3.2%. Agriculture, newly included in the XSBI data, was the weakest performer with sales down 8.6%, following prolonged dry conditions and concerns over wheat quality.
Construction performed slightly above the national average, with sales up 4.6%, while transport and logistics recorded the strongest growth at 8.2%. Xero said that likely reflected higher freight prices driven by fuel costs rather than a clear increase in demand.
Kate Hayward, UK managing director at Xero, said: “Things aren’t improving for our small business economy, which should be a real wake-up call for the new Labour government. 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.”
She added: “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.”
The data also shows payment times edging up. The average time small businesses waited to be paid after issuing an invoice rose to 29.1 days in the June quarter from 28.8 days in the March quarter, although it remained slightly better than the 2025 average of 29.3 days. Businesses were paid an average of 8.3 days late, up from 8.0 days in the March quarter.
Kyle Hyams, owner of Orlas Coffee & Gelato and Aoifes Gelato, said staff costs and the cost of goods had never been higher across his three businesses.
“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.”
He added: “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.”
The figures add to evidence that small companies remain exposed to a difficult combination of weak demand, cost pressure, and cash flow strain. The slowdown is especially concerning because it comes despite warm June weather, which would normally support hospitality, leisure, and some retail categories.
Government backed efforts to support SME technology adoption are already under way, including the digital productivity programme covered in Digital roadshow targets SME productivity. Xero has also been expanding its own workflow tools, including the finance data integration described in Xero brings finance data into Microsoft 365.
Technology can help small businesses improve invoicing, forecasting, stock control, and customer insight, but the XSBI data shows that operational tools cannot fully offset weak demand or late payment. When customers spend less and suppliers charge more, owners often preserve cash by delaying recruitment, reducing stock risk, or limiting investment.
The next fiscal event will carry weight for the small business economy. Measures affecting VAT, business rates, fuel costs, employment costs, late payment enforcement, access to finance, and investment incentives will shape whether the slowdown becomes a temporary pause or a more persistent drag on local economies.
You must be logged in to post a comment.