UK small businesses experienced a challenging start to 2026, according to the latest Xero Small Business Insights (XSBI) data from Xero, a 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).
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).
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.
