Exclusive: Small businesses primed to drive UK economic recovery in coming months

Small businesses are set to drag the UK economy out of the doldrums, reveals exclusive research shared with City A.M..

Rapidly rebounding small businesses in London, compounded by workers receiving a pay bump  across the country, has lifted a closely watched indicator measuring the health of the small business economy.

Xero’s small business index climbed to a 19-month high last month, hitting 95 points, underlining how far small companies, who were among the hardest hit by the pandemic, have come from the depths of the Covid-19 crisis.

Glen Foster, director of small business and accounting partners at Xero, said: “It’s encouraging to see positive signs of small recovery, with wages and jobs moving in the right direction and beginning to reflect the resurgence of the economy.”

London’s small businesses increased staff levels 2.5 per cent, among the highest of any region in the country.

Wages for employees of small firms across the UK climbed 2.7 per cent, mainly driven by the media and telecommunications sectors.

The upbeat data indicates small businesses are best placed to get the British economy over the line and back to pre-crisis levels.

Britain’s economic recovery has stalled in recent months due to a deadly cocktail of global supply chains snapping, entrenched worker shortages and soaring inflation scuppering production.

Several closely watched surveys have revealed the weight of the cost burden UK businesses are now shouldering.

Figures published this week by IHS Markit and the Chartered Institute of Procurement and Supply show last month costs swelled at the fastest pace since January 1998.

Separate data published by the Confederation of British Industry (CBI) yesterday revealed a record level of UK factories are preparing to hike prices. 

Stock levels contracted 16 per cent in November, the sharpest drop on record, according to the CBI. Positively, order growth also climbed steeply.

These headwinds are swirling over small businesses as well, Xero said.

“Many are struggling with supply chain issues, rising costs,” Foster said, adding they are being stung by worker shortages.