Nine in ten small businesses say cost of living is threat to growth

New figures from Novuna Business Finance reveal that nine in ten small businesses (90%) say that aspects of the increase in the cost of living are threatening their growth plans for 2026.

As part of the Business Barometer study, which has monitored the growth outlook of UK small business owners every quarter since 2015, Novuna Business Finance has also tracked business owners’ views on the cost of living crisis since it started in 2022. The latest findings suggest a three-year peak in terms of the percentage of small businesses (90%) that say that aspects of the increase in cost of living are threats to their business and future growth plans – a slight rise this year on a threat level that has been broadly consistent since 2022.

For Q2 2026, more than two in five small businesses (42%) are concerned about the prospect of clients or customers spending less money with them – a concern felt most strongly by enterprises in the hospitality (60%) and retail (72%) sectors. Beyond spend levels, one in two hospitality small businesses (48%) is also concerned that cost-of-living pressures will result in a drop-off in overall customer volume this summer.

Many small businesses also expressed concern over the management of rising costs. A third of small businesses (33%) said they had been forced to absorb rising costs from their suppliers – but 35% said they were not, in turn, able to pass inflationary price rises on to their own customers. The impact of having to absorb rising costs from suppliers was most intensely felt in the manufacturing (53%) and agriculture (51%) sectors. Small businesses operating in the hospitality (53%) and retail (53%) sectors were those least able to pass inflationary costs on to their customers.

Energy costs were also a major concern, negatively impacting small businesses. Nationally, 32% of business owners were concerned about the impact of soaring energy prices on business running costs, and 29% were worried about the rising cost of transportation and logistics. These cost impacts came in addition to the one in four enterprises (25%) that said they were worried about rising rents and the burden of business rates. The impact of energy costs was most strongly felt in three sectors: manufacturing (49%), agriculture (39%) and transport and distribution (53%).

One in five small businesses (21%) feared not being able to pay staff more money, helping their salaries to stay in line with the rising cost of living  – up from 16% two summers ago. This pressure was most strongly felt by small businesses in the manufacturing sector (39%).

The Novuna Business Finance data also suggests that small businesses in Yorkshire, the North and Scotland were most likely to say that one or more cost-of-living impacts were threatening their business.

A decline in customer spend was the biggest concern for small businesses in the North East (56%) and Scotland (50%) – whilst enterprises in London were least affected (44%).

The impact of rising supplier costs was most felt by enterprises based in Yorkshire/The Humber (53%) and Scotland (49%) – again, London-based small businesses were least impacted (30%). Declining customer volume negatively impacted North East (43%) and Yorkshire/The Humber-based small businesses the most (45%) Whilst small businesses in Yorkshire/The Humber (50%), the North East (42%) and Scotland (43%) were most impacted by not being able to pass on inflationary costs to their customers – whereas enterprises in London (37%) and the East Midlands (37%) were impacted the least.

In terms of overcoming many of these challenges, one in two small businesses (50%) say they needed to secure funding or finance to invest in growth initiatives. The most acute need for funding was among small businesses in the manufacturing (62%), hospitality (62%) and retail (59%) sectors. Regionally, Scotland saw the sharpest year-on-year rise in the percentage of small businesses needing to secure funding to power future growth (up from 46% to 55% in just a year).

Jo Morris, Head of Insight at Novuna Business Finance, said “As part of our long-standing tracking of small business growth outlook, we have monitored the business impact of the cost-of-living crisis since it began in 2022. The results show that cost-of-living pressures have been a consistent worry for small business owners for many years. If anything, concerns have risen this year. Our data shows that the rise in employers’ National Insurance has triggered fears of further tax rises. It also highlights the impact of the oil crisis on small business running costs. In addition, concerns over falling customer volume and spending present further challenges that small businesses have to deal with over the summer months.”

“At Novuna Business Finance, we have tools and products that can help SMEs rethink their funding requirements for assets and to free up working capital. We note that one in two small businesses say they need funding to grow. At Novuna Business Finance, we are committed to helping established UK businesses turn the corner and fulfil their true potential. Everyone has a part to play because, ultimately, the UK economy swinging back into sustained growth will be powered by the small businesses that remain the engine room of the British economy.”