UK small business sales growth slows as sector gap widens

UK small business sales growth slowed to 4.0% year on year in the September quarter, with the gap between industries widening.

Xero's Small Business Insights series, based on anonymised and aggregated data from 440,000 UK small businesses, showed growth had eased from 5.6% in the June quarter and remained below the historical average of 8.4%.

Monthly sales growth stayed subdued through the quarter, with sales up 4.6% in July, 3.5% in August and 3.9% in September. The figures suggest weak momentum across much of the small business sector, even though headline growth remained positive.

Sector split

Agriculture was the weakest-performing industry, with sales down 6.2% from a year earlier. This was the second consecutive quarterly decline and the sector's lowest sales quarter since the series began in 2017, after a dry summer.

High street-facing sectors also remained under pressure. Hospitality sales rose just 0.7% year on year, while retail sales increased 0.8%, indicating weak consumer demand as household budgets remained stretched.

By contrast, transport and logistics recorded the strongest sales growth at 6.9%. Administrative services grew 6.7%, other services 5.9%, manufacturing 5.7%, and both professional services and construction 5.2%.

Regional performance was mixed. Northern Ireland posted the fastest sales growth at 5.1%, followed by the East Midlands at 4.6% and London at 4.4%. Wales recorded the weakest increase at 2.3%.

Kate Hayward, UK managing director at Xero, said: "This data shows the reality of running a small business at the moment. Since the start of the year, we are seeing sales growth remain slow and below historic averages, leaving businesses in need of more support. Despite all the macroeconomic challenges, UK small businesses have continued to show remarkable resilience."

She added: "But resilience alone isn't enough. Policy makers need to listen and act quickly on behalf of our amazing small businesses who fight every day for the communities they support and who provide so much to our economy. The Budget is just the start - and we're all looking for the government to deliver."

Jobs and pay

Hiring improved modestly in the quarter, though it remained below longer-term norms. Jobs growth rose to 2.6% year on year from 1.9% in the June quarter, but stayed below the historical average of 3.3%.

Retail recorded one of the strongest increases in jobs, at 5.2%, despite weak sales. Agriculture saw jobs growth of 4.6%, while healthcare and social assistance rose 4.4%. Hospitality lagged again, with employment up only 1.5%.

The contrast between sales and employment in retail stood out, while weak performance in both hospitality and retail underlined the pressure on sectors that account for a large share of entry-level and youth employment.

Northern Ireland again led the regions on hiring, with jobs growth of 4.2%. The North West followed at 3.6%, ahead of London at 3.4%.

Payment pressure

Businesses also waited longer to be paid, adding strain to cash flow. Average payment times rose to 29.5 days in the September quarter from 28.8 days in the June quarter.

Late payments worsened slightly, with the average late payment time increasing to 8.0 days from 7.6 days. Even so, both measures remained broadly in line with or better than 2025 averages.

Wage growth slowed at the same time. Average small business wage growth fell to 2.5% year on year from 2.8% in the previous quarter and remained below the historical average of 3.2%.

That left pay growth trailing inflation, which stood at 3.1% according to figures cited by Xero. The gap adds to pressure on workers' spending power and may help explain continued weakness in customer-facing sectors such as retail and hospitality.

The latest figures show a small business economy that is still expanding, but unevenly. Growth in some service and industrial sectors offset a sharp contraction in agriculture and near-flat performance on the high street, while slower wage growth and longer payment times added to financial pressure across the sector.

For agriculture in particular, the quarter stood out for the depth of the decline, with sales at their lowest point in the Xero series since 2017.