Small firms enjoy fastest growth for over two years, says report

And the West Midlands is leading the way, according to the latest Sage small business tracker, which found that average profits in the sector in the UK surged 9.5 per cent higher year on year between April and June, marking the highest growth since the first quarter of 2022.

The report, compiled with Smart Data Foundry and the Centre for Economics and Business Research (Cebr), also showed that small business revenues lifted by 4.4 per cent year on year, which is also the fastest since the first quarter of 2022.

It comes amid a pick-up in the wider economy after last year’s shallow recession, with growth of 0.6% in the second quarter following 0.7 per cent in the first three months of 2024. But hopes of a stronger recovery could falter after monthly gross domestic product (GDP) figures showed zero growth in June and July.

In a further boost to the small firms sector, the Sage study showed that overheads after inflation is taken into account remained unchanged on an annual basis in the quarter, the first time costs have not risen since the end of 2022.

On a quarterly basis, overheads have fallen for two quarters in a row, which the report largely puts down to falling fuel costs.

Derk Bleeker, chief commercial officer at Sage, said: “This quarter’s tracker showcases the robust financial performance of small businesses in the UK. It’s clear that small businesses are not only adapting but thriving.

“These achievements highlight their ability to innovate, manage costs effectively and drive economic recovery, solidifying their crucial role in the broader UK economy.”

The data, which analysed Sage accounting and payroll data of more than 153,000 UK businesses, found there was growth across all regions of the UK.

The West Midlands led the way with a 15.1 per cent increase, while Scotland, the North West and Yorkshire and the Humber also saw strong growth above 10%.

But the South West, South East and London recorded below-average growth, with the East Midlands showing the slowest growth at 4.9%.

The report said the disparity was “largely driven by sector specialisms, with the West Midlands and North West excelling in heavy industry”.

However, despite the surge in sales and profits, the report found that productivity dropped by 1.8 per cent year on year in a sharp reversal of the 2 per cent growth seen in the first quarter.

“This decline in productivity can largely be attributed to employee numbers growing faster than revenues, with the average number of employees at 5.6 in 2024 compared to 4.3 in 2019,” the report said.