Holding the line: SMEs dig deep as costs bite and hiring slows

Stretched, not beaten: Britain’s small firms refuse to buckle

Britain’s small businesses are proving once again that resilience is their greatest asset. New data from Sage paints a picture of employers who are hiring more cautiously, battling rising wage costs and coping with growing stress, yet still finding ways to keep their businesses moving forward. Rather than retreating, many

Photo by Hermes Rivera on Unsplash

founders are tightening their belts, holding on to staff and waiting for greater political and economic certainty before investing again. The message from the latest figures is clear: Britain’s small and micro businesses aren’t thriving, but neither are they giving up. They’re weathering another storm—and hoping calmer conditions lie ahead.

Resilience is the name of the game

The Sage SME Pulse is out. This is the regular view of the health and behaviour of British small businesses and medium sized enterprises (SMEs) and their employees put together by Sage. The stats are based on real anonymised data from more than 350,000 businesses in the Sage accounting and payroll products. The latest data show:

•Median gross pay rose 4.1% year-on-year to £2,203, with take-home pay up 3.3% to £1,804. Pay growth is easing amid increased slack in the UK labour market.

•Headcount among micro businesses grew +0.4%, outpacing small and medium firms at +0.2% each. The £10,500 Employment Allowance may be shielding the smallest employers from the full impact of the NICs rise, but this protection falls away as firms scale up.

•On a sectoral basis, Finance and Insurance was the strongest sector for headcount growth at +1.5%, while Wholesale and Retail Trade led on earnings growth at +4.5%.

Yet hiring continues to ease

•Real terms pay growth is being squeezed, falling to 1.0% this month, as nominal wages cool and progress on reducing inflation is stalled by the conflict in the Middle East.

•On regional granularity, Wales recorded the greatest headcount decline at -0.4% despite leading the UK on pay growth at 5.8%. Its heavy reliance on manufacturing and construction leaves it particularly exposed to energy price volatility from the ongoing Iran-Strait of Hormuz disruption.

•Accommodation and Food shed the greatest number of employees of any sector at -1.4%. As one of the largest employers of young people, the sector’s continued job losses have wider implications for youth employment.

THE STORY FROM THE MAY 2026 STATS

Hiring slows, stress rises, and founders brace for a turbulent summer

If you run a small business, here’s what you need to know.

Hiring Has Slowed but Not Collapsed

Small businesses are still hiring, but far more cautiously.

• Fewer new roles advertised

• More part‑time and flexible roles

• A rise in temporary and seasonal contracts

• Many founders are delaying recruitment until after political clarity returns

This isn’t a hiring freeze; it’s a holding pattern.

Founders are keeping teams lean, watching cashflow, and waiting to see what the next government does on tax, employment law and business support.

Turnover of people Is Down, Because Employees Are Staying Put

The Pulse shows a drop in voluntary turnover:

• Workers are nervous about switching jobs

• Cost‑of‑living pressures make stability more attractive

• Fewer competing job offers in the market

For founders, retention is easier when the job market cools.

But it also means:

• fewer fresh skills entering teams

• harder to recruit specialist roles

• more pressure on existing staff to “do more with less”

Absence and Burnout Are Rising

The Pulse highlights a worrying trend:

• sickness absence is creeping up

• stress‑related leave is rising

• mental health strain is becoming more visible

This is the hidden cost of:

• long hours

• understaffed teams

• founders firefighting

• employees absorbing extra workload

Small businesses are resilient but they’re tired.

Wage Pressure Is Still High

Despite the cooling labour market, small businesses report:

• continued pressure to raise wages

• candidates expecting inflation‑level increases

• existing staff asking for cost‑of‑living adjustments

• higher payroll costs due to minimum wage changes

This is the squeeze: revenues aren’t rising, but payroll costs are.

Productivity Is Flat

The Pulse shows productivity holding steady.

That’s remarkable given:

• political uncertainty

• supply chain disruption

• rising costs

• weaker customer demand

But founders know productivity is being held up by sheer effort, not investment.

Without clarity on tax and regulation, small businesses are delaying:

• tech upgrades

• automation

• training

• expansion plans

This is resilience but it’s not sustainable forever.

Founder Stress Levels Are Rising

The Pulse shows a spike in founder‑reported stress, driven by:

• cashflow pressure

• late payments

• political uncertainty

• rising wage bills

• staff wellbeing issues

• unpredictable demand

Small business owners are carrying the weight of the economy again.

There’s a Quiet Confidence About the Second Half of 2026

Despite everything, the Pulse shows:

• cautious optimism

• expectations of stronger demand after political clarity

• hopes for interest rate stability

• belief that summer trading will help cashflow

Small businesses aren’t upbeat, but they’re not defeated either.

SMEs are holding the line even though they’re under strain.

Expect:

• slower hiring

• higher wage pressure

• more burnout

• tighter cashflow

• cautious customers

• delayed investment

But also:

• better retention

• stable productivity

• a potential summer uplift

• a stronger second half of the year if political clarity arrives

The Sage Workforce Pulse shows a small business sector that’s stretched, cautious, resilient and waiting for stability.