European Fintech iwoca noted that as the new year unfolds, small and medium-sized enterprises (SMEs) in the United Kingdom are grappling with a sharp decline in confidence regarding the national economy, even as forecasts suggest robust expansion potential. iwoca also indicated that recent data reveals a concerning trend: only 38% of SME owners express optimism about the UK’s economic trajectory, a significant drop from 51% recorded the previous year.
According tot he iwoca report, this shift highlights a disconnect between individual business prospects and broader macroeconomic worries, potentially hindering growth across the sector.
Hiring intentions have also taken a hit. Fewer than half—45%—of small business leaders anticipate expanding their teams in 2026, marking a 10-percentage-point decrease from early 2025 levels.
This caution stems from escalating operational pressures that are squeezing margins and forcing reevaluations of expansion strategies.
Despite these hurdles, optimism about personal revenue streams remains steady, with 72% of owners projecting turnover increases this year, nearly identical to the 71% figure from 2025.
However, a small but notable 9% foresee a contraction in their sales, underscoring pockets of vulnerability.
The primary culprits behind this waning enthusiasm include surging daily running expenses, cited by 47% of respondents, and persistent uncertainty in the UK economy, noted by 44%.
Additional factors compounding the strain are increases in business rates (34%) and elevated interest rates (30%), which are particularly burdensome for cash-strapped operations.
These issues are not isolated; they reflect a broader sentiment that the government is mishandling support for SMEs.
A significant 64% of business owners believe policymakers are heading in the wrong direction for the sector entering 2026, while 62% perceive the UK as lagging behind international competitors.
Finance professionals echo this, with 76% reporting that recent policies have adversely affected small firms, and many anticipating further deterioration following budget announcements.
Emerging technologies like artificial intelligence present a mixed bag. While 66% of SMEs are enthusiastic about AI’s possibilities for efficiency and innovation, over a quarter (26%) plan to trim staff numbers in the coming year as they integrate these tools.
This could exacerbate employment challenges, especially in a climate already wary of hiring.
On a brighter note, entrepreneurial spirit persists. In the first half of 2025, approximately 84 new businesses were registered hourly, culminating in over 363,000 incorporations.
Moreover, access to funding remains a key growth enabler: firms securing loans have seen average monthly revenue boosts of 19%, according to specialized economic analysis.
Christophe Rieche, CEO of a leading SME finance provider, captures the dilemma:
“SMEs are in a paradox of confidence—strong on their own futures but eroding trust in the UK’s path is curbing recruitment for 2026. To harness the power of the nation’s small businesses, authorities must ease cost obstacles and facilitate better finance options to fuel expansion, jobs, and overall prosperity.”
This fractured outlook could stifle the UK‘s recovery if unaddressed.
With SMEs forming the backbone of the economy, prioritizing reduced burdens and enhanced support will be crucial.
The findings, drawn from a survey of 1,005 SME leaders, serve as a call to action for potentially fostering resilience in 2026.