Operating costs and economic uncertainty are top small businesses concerns

Optimism in the UK’s economic future among small businesses has tumbled heading into 2026, according to new research from iwoca.

The research found that less than two-fifths (38%) of small businesses were optimistic about the UK economy, down from 51% last year.

When asked about their main concerns for their business this year, nearly half (47%) of SMEs listed rising day to day operating costs as their chief concern, followed closely by uncertainty about the UK economy (44%). Rising business rates (34%) and higher interest rates (30%) were also raised as significant worries amongst business leaders.

Nearly two thirds (64%) of small business owners believe the Government is ‘on the wrong track’ for SMEs heading into 2026, while 62% feel the UK is falling behind compared to other economies globally.

These concerns and slump in economic confidence have begun to impact the hiring strategies of small and medium-sized enterprises, with less than half (45%) planning to expand their workforce in 2026 – down 10 percentage points since last year.

The integration of artificial intelligence among small businesses is also creating concerns around hiring – while two-thirds (66%) are excited about the opportunities AI presents for their company, more than a quarter (26%) expect to reduce their headcount in the next 12 months as it is implemented more widely.

Despite this, UK SMEs are more buoyant about their own growth going into 2026, with the majority (72%) expecting turnover to increase this year, broadly the same as in 2025 (71%). In contrast, 9% of SME leaders surveyed said they expected their business turnover to shrink in 2026.

Recent research by Capital Economics, commissioned by iwoca, highlighted the importance of access to finance in driving turnover growth – it found that SMEs receiving a loan can increase their monthly revenues by an average of 19%.

Christophe Rieche, CEO and co-founder of iwoca, said “Small businesses are caught in a confidence conundrum – while they remain bullish about their own growth prospects, their faith in the UK’s wider economic direction is fracturing and this is already stifling hiring plans for 2026.

“To unlock the full potential of the UK’s 5.6 million small businesses, the government should look at ways to strip away the burdensome cost barriers they face, while ensuring they can access the finance they need to grow, hire and boost the UK economy.”