FSB Voice of Small Business Index
Quarter 3, 2025
Infographics SBI Q3 2025
“Confidence drops around 14 points from Q2 2025’s reading”
Nearly half
Over half
One in five
FSB Foreword
With small business confidence at a very low ebb, the third quarter saw more gloom than sunshine among the UK’s small business community.
Declining even further to -58 points from the already strongly negative -44 points in the second quarter, Q3’s headline confidence reading should be a wake-up call to policymakers that small firms are feeling a huge amount of pressure as we head into the final few months of the year. We are urging the Chancellor, Rachel Reeves, to heed this stark warning and to take dramatic action in the Autumn Budget to ease the small business rates burden and the impact of increasing employment costs – plus, of course, to avoid actions that make things worse.
Even more concerning than the fall in confidence is the finding for only the second time in the SBI’s history – with the first having come in the previous quarter’s survey –that the proportion of small firms bracing for contraction, be it downsizing, closure, or a sale, in the next 12 months (30%) significantly outweighs the proportion who expect to grow over the same period (18%).
Within that contraction figure, the percentage of those specifically predicting that they will close the business in the next year has jumped to 6 per cent, up from 4 per cent in Q2. That could equate to more than 330,000 potential business closures among the UK’s 5.7 million small and medium-sized businesses.
The main factor driving this pessimism around growth is the domestic economy, cited by over two-thirds of small firms (68%), followed by the tax burden (45%), labour costs (34%), and consumer demand (28%).
The outlook for employment is also grim. Just 6 per cent of small businesses said they planned to increase their employee numbers in the next three months, while one in five (20%) said they would have to cut their staff levels.
Looking at revenues over the third quarter of 2025 provides little relief. One in five small firms (21%) said their revenues rose over the previous three months, while over half (55%) said they fell.
Revenue predictions for the final quarter of the year –usually the so-called ‘golden quarter’ for many consumerfacing businesses in retail and hospitality – were also very subdued, with around a fifth of small businesses (21%) predicting revenue growth, but nearly half (49%) bracing for a fall.
It all adds up to a worrying picture. The Government must grasp the opportunity presented by the Budget to turn this situation around and enable small businesses to grow rather than having their ambitions held back, and in turn hampering economic growth.
Millions of small businesses shrinking, closing, or selling up instead of growing means a vicious cycle of a lower tax take, higher unemployment, and greater demands on the state all exacerbating each other in a downward spiral.
Without small businesses economic growth is a lost cause, and small firms will justifiably be looking for positive backing.
Tina McKenzie, Policy Chair
Martin McTague, National Chair
Small Business Index
Small Business Index indicates pessimistic end to 2025
The Small Business Index (SBI) fell to -58.1 in Q3 2025, down from -44.1 in Q2 2025. The decline in sentiment amongst small businesses reflects a more pessimistic outlook over future business performance, which has prevailed throughout the year. Over half (54.0%) of small businesses expect conditions to worsen over the next three months, whereas only 15.3% of small businesses anticipate an improved performance. The dominant negative outlook across small businesses may reflect broader concerns about the weak performance of the UK economy and increased policy uncertainty leading up to the Autumn Budget.
Other SBI indicators reinforce the deteriorating outlook for small businesses. Operating costs remain elevated, driven by high tax burdens and labour costs. Revenue expectations saw a modest improvement in Q3 2025, but on balance remain negative and low compared to historic levels.
Figure 1: The FSB Small Business Index:1 Small business prospects over coming three months Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
1 The Small Business Index is a weighted index of the responses to the question: ‘Considering your overall business performance, and ignoring any normal seasonal variations at this time of the year, how do you view business prospects over the next three months, compared with the previous three months?’ The share of firms reporting are given the following weightings: ‘much improved’ +2; ‘slightly improved’ +1; ‘approximately the same’ 0; ‘slightly worse’ -1; and ‘much worse’ -2; the Small Business Index is derived from the sum of these factors.
Figure 2: Year-on-year change in the FSB Small Business Index, rolling four-quarter average
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Figure 3: UK SBI against year-on-year UK GDP growth
Source: ONS, FSB - Verve ‘Voice of Small Business’ Panel Survey
Regional Small Business Index
Negative sentiment persists across the UK
In Q3 2025, the Small Business Index (SBI) remained negative for all regions,2 indicating that most small businesses expect conditions to deteriorate over the next three months. All regions saw a worsening in sentiment, except for London. This may have been driven by the comparatively strong business activity growth in the capital over the quarter, as highlighted by NatWest’s Regional Growth Tracker.3
On balance, the worsening in sentiment across all but one region reflects broad-based cost pressures and a pessimistic outlook prevalent throughout the UK. However, there are some region-specific factors. For instance, having previously experienced an improvement in business sentiment between Q1 2025 and Q2 2025, the West Midlands saw a significant drop this quarter of -30.2 points. Small businesses in the West Midlands may have suffered negative knock-on effects from the cyberattacks facing Jaguar Land Rover, which resulted in major disruptions to supply chains and production.
Figure 4: FSB Small Business Index – Regional variation in small business prospects over the coming three months
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
2 Sample size for Northern Ireland and Wales is insufficient for accurate reporting. The North East is combined with Yorkshire and the Humber due to low sample sizes for the former region.
3 Source: NatWest UK Regional Growth Tracker report for August 2025 | NatWest Business
Sector Small Business Index
All tracked sectors reported worsening outlook for business prospects
The sectoral breakdown of small business prospects paints an increasingly pessimistic outlook, with all sectors expecting worsening business prospects over the next three months compared to the previous quarter. The Q3 2025 reading marks the sixth consecutive quarter of unanimously negative sentiment across the sectors.
Accommodation and food service activities continued to display the weakest sentiment, dropping 13.4 points to -88.6 points, as the increases to employers’ National Insurance contributions and the National Living Wage continue to weigh in on costs for this labourintensive sector.
Information and communication and manufacturing displayed the largest drops in sentiment between Q2 2025 and Q3 2025. The drop in information and communication small business sentiment is corroborated by the latest GDP data. According to the Office of National Statistics, information and communication saw a 0.7% drop in output in July 2025, marking the largest negative sectoral contribution to GDP for that month. The UK manufacturing sector faced weak domestic and export demand, as well as increased labour and energy costs over Q3 2025, contributing to the 31.9-point decline in small business sentiment in this sector.
Figure 5: FSB Small Business Index by sector – small business prospects over the coming three months Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Accommodation and
Revenue Performance
Revenue performance reaches an all-time low for small businesses in Q3 2025
The net balance of small businesses reporting revenue growth in Q3 2025 fell to -34.3%, the lowest level on record. The negative balance indicates that more businesses reported a decrease in revenue than an increase. The reported revenue performance is likely because of poor domestic demand, coupled with rising operating costs, including high tax burdens, labour costs, and utility bills.
With regard to expectations for the coming three months, the net balance of firms expecting an increase in revenues is slightly stronger, at -27.3%. Despite a modest increase, the outlook remains negative for Q4 2025. The worsening outlook is reinforced by poor growth aspirations, with the number of small businesses hoping to grow over the coming year also reaching its lowest level on record. Small businesses may be apprehensive of potential policy changes in the upcoming Autumn Budget that could hinder future revenue performance further.
Figure 6: Small business revenue, net percentage balance (i .e . Proportion reporting/expecting increase in revenues over the past/next three months less proportion reporting/expecting decrease)
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Net balance of businesses reporting an increase in revenue - last three months
Net balance of businesses expecting an increase in revenue - next three months
Exports
Weak export conditions prevail for small businesses in Q3 2025
In Q3 2025 the net balance of exporting businesses reporting growth in the value of their exports reached -31.6%, almost twice as low as the Q2 2025 value (-16.8%). Of the exporting small businesses, around half (50.9%) saw a decrease in the value of their exports, whereas only 19.2% saw their export value increase. The negative sentiment is supported by the £0.4bn drop in services exports recorded in July 2025 by the Office of National Statistics. While goods exports did see a shortterm rise that month, the overall outlook amongst small businesses remains pessimistic.
Export activity has remained under pressure as the impacts of tariffs have materialised over the year. The declining export growth value was more pessimistic than the previous quarter’s expectations for Q3, despite the removal of tariffs on UK aluminium and steel exports and the partial rollback of automotive tariffs previously imposed by the US. Q4’s expectations remain negative, highlighting the difficult conditions facing the UK’s most internationally exposed small businesses.
Figure 7: Changes in value of exports over the previous three months and expectations for the coming three months; net percentage balance (proportion reporting increase, less proportion reporting decrease)
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Net balance of exporters reporting growth, past three months
Net balance of exporters expecting growth, next three months
Costs and Inflation
Taxation remains the primary cost pressure for small businesses in Q3
The net balance of small businesses reporting an increase in operating costs rose slightly in Q3, indicating that cost pressures in the UK economy are not letting up. Taxation was the most frequently chosen cause of cost rises, as the tax burden on small businesses remains elevated from the rise in employers’ National Insurance contributions implemented in this fiscal year. A more recent ruling cutting business rate relief for individual businesses in shared workspaces may partially explain Q3’s higher share of survey responses citing tax as a primary cost pressure compared to Q2.
The effects of these tax changes would also be captured within labour costs, alongside April’s increase to the National Living Wage. These remain a key concern for small business owners, although the share of small
businesses citing labour costs as a key cost pressure fell in Q3 from Q2. This may be linked to the UK’s loosening labour market. With unemployment rising, wage growth has slowed, which may have eased some of the existing labour cost pressures.
The share of small businesses citing fuel and inputs as primary cost pressures rose in Q3. Although producer price inflation data are currently unavailable from the ONS due to data quality concerns, this sentiment broadly aligns with the most recent inflation data. UK CPI inflation rose to 3.8% in July and August, well above the Bank of England’s 2.0% target, including a 9.3% increase in prices for electricity, gas, and other fuels.
Figure 8: Small businesses reporting an increase in overall cost of operation over past three months, compared with the same period a year ago; net percentage balance
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Figure 9: Main causes for changing business costs* *Firms may give multiple answers
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Employment
Small businesses’ employment outlook nears pandemic-era lows
For the fourteenth successive quarter, small businesses reported a net contraction in workforce size. Q3’s net balance dropped to the lowest level since the pandemic, last being lower in Q4 2020.
These figures reflect the continued loosening of the UK’s labour market. The latest data from the ONS also corroborate this, showing the UK’s unemployment rate rising to 4.7% in July 2025. Small businesses, and employers more generally, have reacted with caution to the elevated labour costs and lingering uncertainty in the UK economy.
On net, small businesses also expect further reductions in headcount over the next three months. Small businesses likely expect that the high tax burden and rising inflation will further squeeze margins over the quarter, dampening employment appetites. These may already be weak due to uncertainty surrounding November’s fiscal event.
Figure 10: Net percentage balance change in number of people employed – proportion reporting increase, less proportion reporting decrease
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Growth Aspirations and Challenges
Growth expectations fall to lowest level on record
In Q3 2025, the share of small businesses planning to downsize, close, or transfer ownership over the next 12 months hit the highest level in the history of the Small Business Index, with the net balance of firms expecting to grow falling by 10.6 percentage points from the already record low of Q2. While it was clear that rising policy uncertainty both domestically and abroad, combined with a stagnating domestic economy, would hit confidence hard, Q3’s figures present a uniquely worrying outlook for small businesses in the UK.
Growth aspirations were weakest for accommodation and food service activities. The hospitality sector, after being one of the hardest hit industries following stay at home orders during the pandemic, has not seen a strong recovery. The sector is disproportionately exposed to headwinds both on the supply and demand sides; weak earnings growth has limited the discretionary income that hospitality relies on, while its strong reliance on minimum wage and temporary workers has left it highly exposed to the recent raise to wage floors.
Figure 11: Growth aspirations for next twelve months
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Small business growth barriers show pressure on multiple fronts
The domestic economy remains the most frequentlycited barrier to expansion for small businesses. Growth remains dampened, at only 0.3% quarter-on-quarter in Q2 according to the ONS, while inflation has stayed firmly above target. Small businesses now face significant challenges on both the supply and demand sides. Weak earnings growth and rising policy uncertainty have pushed up savings ratios, dampening consumer appetites and in turn pushing down revenues. In parallel, a high tax burden and rising input costs have further squeezed margins. Additionally, despite the Government’s target of cutting red tape, regulation was cited as a barrier to growth more often even than the costs of inputs and utilities. The past
decade has seen the regulatory environment become far more restrictive in the UK, imposing costs in the form of both compliance workloads and forgone expansion plans.
New policy plans to correct this have not changed the trajectory of expectations. In its August plan for small and medium-sized businesses, the Government pledged to cut administrative costs of regulation by 25% through reporting and licensing reform, but without a clear timeline for implementation, small businesses expect regulation to remain a key barrier to growth in the near term.
Figure 12: Potential barriers to achieving growth aspirations*
* Respondents could select multiple answers
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Credit
Falling interest rates have not protected high-risk borrowers
Figure 13: Credit applications and interest rates offered
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Q2 2025 Q3 2025
The Bank of England’s base rate has fallen by over 125 basis points since July 2024, with Q3 seeing a cut of 25 basis points in August, the most recent at time of writing. While policy rates remain elevated after being held at 4.0% in September, the survey results may suggest that small businesses enjoyed cheaper credit in Q3 compared to Q2. Additionally, the proportion of applications that were successful has risen slightly, which aligns with June’s expansion to the British Business Bank‘s total financial capacity. Over the financial year, the Governmentowned financing body, which specialises in allowing small businesses to access credit, will adjust its capacity for investments by around £2.5 billion each year in an ongoing expansion that has likely seen credit support starting to rise over Q3.
While the generally lower interest rates from the survey should be a rare sign of encouragement for small businesses, an important caveat is the 8.2 percentage point rise in the share offered interest rates of 11.0% or more. Elevated rates indicate that creditors are seeking a higher risk premium for finance offered to small businesses. With 36.7% of small businesses successful in applying for credit seeing borrowing costs rise above 11.0%, this further illustrates the reduced security of outlooks, being less able to access affordable credit to smooth out periods of volatility, or support expansion.
Figure 14: Proportion of small businesses successful in their credit applications in the past three months Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Credit availability and affordability perceptions reflect rising risk premia for higher numbers of small businesses
Respondents were also asked how they rated the credit landscape, encompassing both affordability and availability. The results further corroborate the idea that credit conditions are worsening for small businesses. The percentage of responses ranking the environment as ‘very poor’ rose by 3.1 percentage points compared to Q2.
While policy incentives and base rate cuts have seen approval rates among those seeking credit rise slightly, this is more than offset by continual constraints, not least the increasing proportion of businesses facing interest rates of 11.0% or more.
Figure 15: Index of credit perceptions over time, a weighted net balance of those with negative responses subtracted from those with positive responses
Source: FSB - Verve ‘Voice of Small Business’ Panel Survey
Weak economic performance prompts further shrinkage in capital investment plans
The net balance of positive investment intentions fell by 5.0 percentage points to -15.0% in Q3, another figure at pandemic-era lows. This reflects the muted growth appetite among those surveyed. As discussed throughout the report, the domestic economy is squeezing small businesses from all angles; inflation is persistent, consumer demand is weak, and regulatory burdens are high. Considering also the high levels of uncertainty, it is not surprising that small businesses are shelving investment plans in the near term.
The regional breakdown shows negative net balances across the UK, with London as the only assessable region with a net balance above -10.0%. The capital
has often been the most insulated region during periods of pessimism due to the strength of its services sector. Conversely, the West Midlands was the region with the lowest proportion expecting to invest, with a net balance of -31.1%. With its considerable reliance on manufacturing, the region has been highly exposed to the recent tariff upheaval that has seen exports to the US fall significantly. When considered alongside the recent EU proposal to considerably reduce tariff-free quotas on steel, it is understandable that the region’s investment appetite would be muted at best.
Figure 16: % of small businesses expecting to increase and decrease capital investment over next quarter, compared with the previous quarter
Source: FSB – Verve ‘Voice of Small Business’ Panel Survey
Economist’s View
Pressure on the UK economy intensified over recent months. Savings ratios have remained stubbornly elevated since the pandemic, which has largely put the brakes on demand, contributing to a tepid growth outlook; the UK economy grew by only 0.3% quarter on quarter in Q2. Rising uncertainty and high energy and labour costs have also combined to form a significant downside risk on growth. In the face of strong headwinds, eyes are increasingly turning towards the November Budget, in which the Chancellor faces the unenviable task of simultaneously addressing the UK’s stagnating growth outlook while plugging a growing ‘black hole’ in public finances.
The UK’s insecure economic position is reflected in the Small Business Index. Q3 showed the sixth consecutive negative reading, falling to -58.1 from -44.1 in Q2, indicating that negative sentiment is widespread among small businesses.
Expectations for growth and investment among small businesses fell to some of the lowest levels in the history of the SBI in Q3. The net balance of small businesses expecting to grow in the next twelve months fell to -12.3%, following on from the first ever negative reading in Q2, while the net balance of positive investment intentions into Q4 fell to -15.0%. This continues a worrying trend of falling small business confidence, as pressures from weak demand and high costs show no signs of easing in the near term. It also reflects recent rises in uncertainty. While Q3 has not seen a comparable shock to the tariff announcements of ‘liberation day’ in Q2, the US remains highly unpredictable, and UK exporters have reacted by exercising heavy caution. Ongoing conflicts in Europe and the Middle East are additional upside risks on costs, particularly for energy and petroleum products. Heading into November, small businesses must now also cautiously await how much of the burden they will have to bear as the Government looks both to tackle the budget deficit and raise defence spending in an increasingly tense geopolitical environment.
As previously mentioned, British exporters are being forced to navigate significant new headwinds following sweeping US tariff announcements earlier in the year, and this was reflected in the survey responses. The net balance of exporting small businesses reporting growth
in the value of their exports fell to -31.6% in Q3, with expectations for Q4 also firmly negative. The UK has seen US tariffs removed on aluminium and steel exports but still faces a blanket 10% tariff on other exports. Exporters’ expectations for Q4 will also not be helped by the recent noise about significant reductions in the tarifffree quota for steel imports in the EU. Changes in trade policy also brings the UK’s regional inequalities to the fore within the SBI. London, with its strong reliance on services, is more insulated from changes in trade policy and was the only region to record an improvement in small business sentiment. Meanwhile, the most significant drop was exhibited by the West Midlands, a stronghold of manufacturing, being far more exposed.
Overall, costs in the UK are rising. With inflation at 3.8%, the economy’s outlook is increasingly showing signs of stagflation. With demand cooling significantly, inflation is largely coming from the supply side; industrial energy prices in particular are 90% higher than the average of major EU countries, owing to a high reliance on natural gas that has seen prices rocket up since the beginning of the war in Ukraine. Cost factors are not entirely external, though. More businesses cited taxation and regulation as causes for changing costs in Q3 compared to Q2, while raised labour costs from increases to wage floors in Q2 continue to weigh heavily on the balance sheets of small businesses.
Cebr’s forecasts for the UK economy support the small business sentiment on display in this report. Following substantial trade policy volatility, we anticipate export values to remain depressed. We also anticipate a continuation of the loosening labour market in the face of high labour costs, while the growth outlook is slow at best. While the Budget presents an opportunity for the Chancellor to reverse some of these dynamics, negative sentiment amongst small businesses is likely to prevail into Q4 and beyond.
Sam Miley, Head of Forecasting and Thought Leadership, Cebr
Appendix
Summary data table
– coming three months
Credit
and affordability
‘very
Credit availability and affordability – rated ‘poor’ or ‘very poor’
The Small Business Index weights strong responses (much improved or much deteriorated conditions) double and subtracts the weighted proportion of firms reporting deterioration in business prospects over the coming three months from the weighted proportion expecting an improvement.
The Credit Index weights weak responses (quite poor or quite good) half, then subtracts the weighted proportion of firms reporting poor availability of credit from the weighted proportion reporting good availability.
The employment and revenue indicators are net percentage balances, with the proportion of firms reporting a decrease subtracted from the proportion reporting an increase.
All SBI responses are also weighted according to regional gross value added.
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