While economic conditions in 2025 have been tricky, exclusive Sage data has found that many SMBs have managed to overcome external challenges to drive success.
Sage’s quarterly Small Business Tracker leverages data from Sage Accounting and Sage Payroll to paint a clear picture of the financial health of the UK’s small and mid-sized businesses.
Despite facing a number of headwinds in 2025, businesses have remained resilient – and are approaching the new year with a sense of optimism.
By Chris Torney
While economic conditions in 2025 have been tricky, exclusive Sage data has found that many SMBs have managed to overcome external challenges to drive success.
Small and mid-sized businesses (SMBs) have faced a highly challenging 2025 – but there are solid grounds for optimism as we move into 2026. Over the past 12 months, economic growth has slowed in both Europe and the UK, while the tariffs introduced by Donald Trump in the first half of the year have created a considerable amount of turbulence in terms of international trade.
SMBs in a number of countries have also had to contend with a degree of political uncertainty: in France, for example, politicians have struggled to pass laws designed to rein in public spending while in the UK, a lack of clarity around the government’s taxation plans has had a negative impact on business confidence. Nonetheless, data obtained by Sage from thousands of clients in the UK – and analysed in greater detail below – shows how SMBs have continued to demonstrate their resilience in the face of these challenges.
Looking ahead, conditions across Europe in 2026 could be supportive for SMBs. Economic forecasts have been upgraded, while inflation – an ongoing issue for businesses in the UK in particular in 2025 – is expected to come under control, raising the possibility of further interest-rate cuts. Meanwhile, the recent UK Budget will offer some level of certainty, while lawmakers in France appear to be close to resolving their differences around fiscal policy.
Analysing 2025: leveraging Sage data for business insights
Every quarter, Sage publishes the Small Business Tracker, an analysis of anonymised Sage Accounting and Sage Payroll data from more than 140,000 SMBs around the UK. The tracker provides real-time insights into business performance across the whole of the British economy.
Rather than relying on business surveys and other data-collection, the figures used to compile each quarter’s Small Business Tracker are based on actual business data and activity.
The most recent editions of the Small Business Tracker show that UK firms have been able to outperform expectations despite facing a number of headwinds. For example, 2025 began on a cautious note ahead of planned increases in both the National Minimum Wage and employers’ National Insurance contributions in April. Data from the tracker showed that SMBs responded by tightening their belts to some extent between January and March, with both real expenditure and cash balances declining for the first time in 12 months. Despite this backdrop, however, average profits rose by more than 8% compared with the first quarter of 2024 while showed a small rise.
Businesses came under pressure in the second quarter…
As UK economic growth slowed in the second quarter of 2025 – GDP expanded by just 0.3% between April and June – real revenues among SMBs declined for the first time in 12 months. However, firms managed to increase their profits, albeit at a slower pace thanks to fall in outgoings.
Speaking in July, Adam Williams, the previous General Manager at Northumberland-based artisan vegan cheese company Tyne Chease said: “Rising costs and cautious consumer spending are piling on the pressure. The general consensus among my network is that it is increasingly difficult to compete.”
…but bounced back in Q3
The Small Business Tracker for the July-to-September period demonstrated considerable resilience among SMBs, despite the uncertainty created by the upcoming Budget and the prospect of further tax increases on employers. Both profits and revenues rose, And the tracker also found a significant increase in business cash holdings, suggesting that firms were attempting to build up reserves as a precaution against further difficulties in the trading environment.
Derk Bleeker, Chief Commercial Officer at Sage, says: “This year’s quarterly trackers have showcased the robust financial performance of small businesses in the UK. It's clear that small businesses are not only adapting but thriving. These achievements highlight their ability to innovate, manage costs effectively and drive economic growth, solidifying their crucial role in the broader UK economy.”
Looking ahead to 2026
While business sentiment in the UK has been mixed for much of the year, recent research from Lloyds suggests that there is a mood of ‘resilient optimism’ among firms. The bank points out that, while confidence levels have dipped since the spring, they remain well above long-term averages as we head into the new year.
In the US, meanwhile, the prospect of higher levels of sales has driven optimism higher, according to the National Federation of Independent Businesses, while the European Commission reported at the end of November that economic sentiment across the European Union had remained stable, with growing confidence across the services sector as well as retail and construction.
Bleeker adds: “Small businesses have proven their adaptability and strength in 2025 and, although the economic backdrop remains uncertain, their ability to manage finances and drive revenue growth will stand them in excellent stead as we move into 2026.”
