Despite the UK economy showing glimmers of recovery, 2024 was still a testing year for small and new businesses due to the ongoing cost of living crisis and relatively high interest rates.
Fast forward to 2025, and there’s good news. As the Bank of England begins to gradually cut interest rates, our 2025 Workforce Report, for which we surveyed 531 SME leaders, has revealed growing optimism for the future.
Businesses aren’t just weathering the storm, they’re making major strides in product innovation and customer retention. This doesn’t mean the path will be smooth for UK entrepreneurs and small business owners, though.
To help you embark on your next steps with confidence, we’ll arm you with the small business statistics you need to know for 2025, including where most failures are occurring, which industries are poised for growth, and what common barriers to overcome.
- 89,515 new ventures launched in Q1 2025, up 2.8% from the same period last year. This rise in business creations indicates strong entrepreneurial activity in the UK.
- SMEs account for 99.2% of the UK’s business population, highlighting the significant economic contribution of SMEs and emphasising the need for continued government support and tailored resources to empower their success.
- SMEs hired 24,900 fewer workers in April 2025, suggesting that small businesses are scaling back employment following recent hikes in National Insurance Contributions (NIC) and the minimum wage.
- 44% of struggling businesses are willing to fundamentally change their business strategy this year, a significant jump from 26% in 2024, highlighting how proactive and adaptable SMEs are in the face of adversity.
On this page, we’ll cover:
What’s the outlook for small businesses in 2025?
The outlook for UK small businesses is marked by cautious optimism, showing significant relief from 2024’s pressures. As inflation rates begin to ease, the Bank of England is gradually cutting interest rates, with the May 2025 base rate at 4.25%, making borrowing easier for SMEs.
Wage growth is now outpacing inflation, putting more disposable income back into consumer spending and directly boosting business bottom lines. While challenges still persist, including steadily rising labour costs and changes to business rates, the economic environment is generally more stable, providing fertile ground for new business owners.
How many small businesses are there in the UK?
According to the most recent government estimates, there are currently 5.45 million small businesses in the UK. This is out of a total of 5.5 million private sector businesses.
Of these small businesses, 1,427,165 have employees, while 4,071,825 have none at all – this is likely due to the 46% of people in the UK who are sole traders or who have started a side hustle.
Despite sole-trader proprietorships making up the vast majority of UK businesses, the number of non-employing businesses has significantly decreased from its peak of 4.6 million in 2020. On the other hand, the number of limited companies has continued to surge, suggesting that sole traders might be choosing to incorporate their business for tax and professional advantages.
Here’s a breakdown of UK private sector businesses, broken down by business type, based on the latest GOV.UK figures:
| Business type | Size (number of employees) | Number | % of all businesses | Turnover (millions) |
|---|---|---|---|---|
| Micro | 1-9 | 5,233,095 | 95.2% | 1,045,159 |
| Small | 10-49 | 219,895 | 4% | 780,563 |
| Medium | 50-249 | 37,750 | 0.7% | 926,431 |
| Large | 250+ | 8,250 | 0.2% | 2,520,453 |
How has the number of UK SMEs changed?
The trajectory of UK SMEs has been growing at a steady pace for the past two decades. When records began in 2000, the overall number of private sector businesses stood at 3.5 million. Skip to the current day, and the overall population has swelled to 5.5 million, representing an impressive growth of 59%.
The UK’s small business growth has been anything but linear, however. Within this timeframe, 2010 onwards saw a particularly strong expansion, with the total number of businesses peaking at nearly 6 million at the start of 2020.
The COVID-19 pandemic then halted this growth, prompting a significant contraction of 8% from 2020 to 2024. This was largely driven by a significant decrease (10.9%) in non-employing businesses.
Are people starting more businesses in 2025?
In short, yes – entrepreneurial spirit is surging in the UK in 2025. According to the ONS, 89,515 businesses were added to the Inter-Departmental Business Register (IDBR) in the first quarter of 2025, marking a 2.8% rise compared to the same time period in 2024.
Growth was recorded among most UK business sectors, with 12 out of the 16 main industrial groups seeing an increase in creations compared to 2024. However, the retail industry emerged as an outlier, bucking previous trends with a 9.1% year-on-year increase in new businesses, marking the strongest rise across all sectors.
How many UK businesses are closing?
In the third quarter of 2024, the ONS reported 75,504 business closures, which is a 4.2% decrease from the same period in 2023. What’s more, the statistics agency has revealed business closure rates in 2025 are continuing to fall YoY, indicating a more stable environment for UK businesses.
However, the ONS hasn’t yet released full data for 2024, so the official business death rate won’t be known until its annual Business Demography report comes out later in 2025.
Exploring the new businesses in the UK
According to ONS data from 2024, the professional, scientific, and technical activities sector remains the largest among VAT and/or PAYE-registered businesses. This broad category, which includes diverse areas like IT consultancy, accounting, legal services, and research & development, accounted for 15.3% of all registered businesses in the UK.
This sector was closely followed by wholesale and retail, which made up 14.6% of registered businesses, and construction, which accounted for 14%.
Which sectors are growing the fastest – and the slowest?
According to data from ONS, these are currently the fastest-growing sectors in the UK:
- Niche online retail: The retail sector saw a YoY growth of 9.7% in the first quarter of 2025. As consumer preferences continue to evolve, niche markets like eco-friendly and sustainable products and pet care and wellness are leading this acceleration.
- Administrative and support services: This sector, which includes functions like call centres, cleaning services, and office administration, increased by 3.3% in the first quarter of 2025, making it the single largest driver of services growth. This expansion aligns with growing desires among UK businesses to outsource non-core functions to specialised providers.
- Human health and social work: As the UK population continues to age, this crucial sector shows consistent expansion, positively contributing to overall services growth by 0.9% from November 2024 to January 2025.
Unfortunately, growth isn’t being recorded across the board. Here are some UK sectors that have been struggling in recent years:
- Metal manufacturing: As high energy prices continue to burden the manufacturing industry, the sector as a whole decreased by 0.8% between February and March 2025. Certain subsectors, like metal manufacturing, were hit harder than others, shrinking by 3.3% during the same period.
- Mining and quarrying: The UK’s mining and quarrying sector saw a YoY decrease of 3.3% in January 2025. This downward trend is mainly attributed to rising operational costs, combined with a global push towards green energy.
- Accommodation and food service: Growth within the UK’s hospitality sector is always fluctuating. However, insolvencies in accommodation and food-service businesses grew by 3% YoY in January 2025, due to rising labour costs and consumers cutting back on discretionary spending.
How many people do SMEs employ?
According to data from GOV.UK, at the start of 2024, 16.6 million people were employed by businesses with zero to 249 employees (SMEs). Within this vast workforce, small businesses, with zero to 49 employees, accounted for 13 million people, while SMEs with 50 to 249 employees employed 3.7 million.
Zooming out, SMEs as a whole accounted for 49% of all national employment and contributed to an estimated £2.8 trillion in turnover, highlighting their critical role in the UK’s employment landscape and wider economy.
Yet, despite almost making up half of the nation’s jobs, SME employment has dropped by 25,000 from March to April 2025, following recent hikes in National Insurance Contributions (NIC) and the minimum wage.
Which UK business sector employs the most people?
The Health and Social Care sector continues to be the largest employer in the UK. According to recent data from the ONS, this sector accounted for 4.8 million jobs as of 2024. This figure includes employment from both NHS and private health and social care providers.
Interestingly, as of September 2024, the sector accounts for a staggering 22% of all jobs held by women, reflecting deep-rooted societal expectations about caregiving roles in the UK.
According to the 2022 Business Population Estimates by the Office for National Statistics (ONS), construction had the highest number of businesses in the UK, with 914,000 firms operating in 2022. While the 2023 data isn’t available yet, construction consistently shows a high number of businesses in official ONS reports.
The same ONS report shows 865,000 businesses operating in the administrative and support services sectors, like recruitment, accountancy, and business administration. Some sources, like the Federation of Small Businesses, also consider that this sector will be the largest this year, based on their calculations.
What’s happening with SME finance and funding in 2025?
As it turns out, fewer and fewer UK SMEs are turning to external finance to resolve cash flow issues.
According to recent data from the British Business Bank (BBB), the proportion of SMEs using external financing options, such as overdrafts and bank loans, fell from 50% in the third quarter of 2023 to 43% in the second quarter of 2024, where it remained steady for the rest of the year. This trend reflects increasing reluctance to take on new debts, likely due to the high costs of borrowing and risks of defaulting.
However, some sectors are notably more reliant on external financing than others. Hospitality and food services, manufacturing, and construction-focused businesses consistently outpace other industries when it comes to actively seeking and utilising third-party capital.
What are the most popular types of business funding in 2025?
Here are the most popular types of business funding UK SMEs are leveraging to fuel growth in 2025:
1. Term loans
This type of funding involves borrowing a set amount over a defined period, and can be issued by traditional high street banks or private lenders. Due to their predictable interest rates and flexibility, term loans remain the most popular method of external finance, with bank loans contributing to £62.1 billion in business funding in 2024 alone.
2. Asset finance
Asset finance allows businesses to acquire or lease assets without making big up-front payments, and is commonly used in capital-intensive sectors such as manufacturing, construction, and transport. In 2024, new asset finance activity reached a record £39.7 billion, with £23.5 billion of this specifically lent to SMEs, highlighting its major role in enabling business investment.
3. Peer-to-peer lending
Peer-to-peer (P2P) lending platforms give businesses a chance to bypass traditional banks by connecting them with individual investors. This alternative funding source facilitated approximately £379 million in business lending in 2024 and is projected to grow further in the coming years, due to its streamlined application process and flexible payment terms.
4. Equity investment
Equity investment involves providing capital in exchange for an ownership stake in the business, rather than debt. This form of external funding is particularly popular among high-growth potential SMEs, especially in sectors – such as technology, green energy and life sciences – that require more sizable chunks of capital.
In 2024, the UK maintained its title as Europe’s leading capital hub, housing 507 deals worth a total of £4.1 billion. However, as investors continue to prioritise profitability amidst economic uncertainties, later-stage deals are becoming more common than ever, accounting for 42% of all deals in the first quarter of 2025.
5. Business grants
Business grants are non-repayable funds typically offered by the government, local authorities, or specific organisations. Unlike business loans, they do not need to be paid back, making them a highly desirable option for SMEs. Business grants are much easier to obtain by businesses in specific sectors, like research & development, local development, and renewable energy.
If you’re interested in boosting your cash flow without strict repayment terms, learn more about what opportunities are available to you in our guide to grants for small businesses.
What challenges are small businesses facing this year?
Unfortunately, the road to small business success is often paved with challenges. In our Startups’ 2025 Workforce Report survey, we asked struggling SME leaders about their biggest pain points, as well as what strategies they’re using to overcome them.
In 2025, the main concerns for UK small businesses are:
1. Adapting to economic challenges
From rising business rates to minimum wage increases, economic pressures continue to be a significant hurdle for UK businesses.
However, in the face of persistent economic headwinds, our survey reveals UK businesses are demonstrating a growing proactive stance, with a striking 44% of struggling businesses indicating that they will fundamentally change their business strategy this year, a significant jump from 26% in 2024.
2. Gaining funding
Access to capital remains a critical lifeline for businesses battling economic pressures. Unfortunately, high interest rates and increased caution from lenders are making it even harder for small businesses to get on the funding ladder in 2025.
To sidestep these issues, our survey found that 34% of struggling businesses are now prioritising fundraising efforts this year, a substantial increase from 22% in 2024. This rise underscores the adaptive nature of UK businesses in response to an increasingly hostile lending environment.
3. Diversifying products or services
Despite the clear imperative for strategic change, the proportion of struggling businesses planning to diversify their products or services has remained static. To be specific, our survey found that 16% indicated they will make such changes this year, mirroring the 16% seen in 2024.
This presents a stark contrast to 2020, when the COVID-19 pandemic forced businesses to rapidly pivot their business model and launch new products or services in order to remain afloat.
4. Acquiring new customers
For businesses navigating economic headwinds, doubling down on attracting new customers has become a non-negotiable. Our survey found that 44% of struggling businesses are committing to investing in small business marketing to grow their audience this year, a significant rise from 33% in 2024.
While nurturing existing customers remains the best way to secure long-term growth, this increased emphasis on customer acquisition signals a clear understanding that expanding market share is essential for survival and recovery.
What’s next for UK small businesses?
The challenges facing UK small businesses are undeniable, yet the data consistently points to a remarkable resilience. Far from simply enduring hardship, businesses are actively strategising, diversifying, and innovating.
From steady upticks in consumer spending to lowering borrowing costs, 2025 is bringing new opportunities to businesses too, offering clear pathways for growth and renewed stability.
