Midlands SMEs outpace UK on profitability, Sage data shows
Small businesses in the Midlands are outperforming the rest of the UK on profitability, according to new data from Sage, the Newcastle upon Tyne-based accounting, financial, HR and payroll technology company.
The latest Sage SME Performance Pulse, which analyses anonymised accounting data from nearly 150,000 SMEs, reveals that East Midlands businesses recorded profit growth of 18.8% in the year to Q2 2026. This is more than three times the national average of 5.3%.
The West Midlands followed closely with 12.8% profit growth, underscoring the region’s momentum.
“The East Midlands is where the UK’s small business growth story is being written right now,” said Derk Bleeker, Chief Commercial Officer at Sage. “What stands out in our data is that this is a region growing faster than its counterparts elsewhere in the country, in the same sectors, facing the same national headwinds. That kind of sustained regional performance is a blueprint for growth. It shows the power of backing local economic strengths and harnessing technology like AI.”
National picture: steady profit growth, slowing revenues
Across the UK, profits for the average small business grew 5.3% in the year to Q2 2026, a slight increase from 5.1% in Q1. The data comes as the wider UK economy expanded 1.2% year-on-year, more than double the 0.6% growth recorded in Q1, according to the Office for National Statistics (ONS).
However, revenue growth is showing signs of softening. Real revenues rose 1.6% annually in Q2, down from 3.2% in the previous quarter, a trend Sage says points to easing demand for small business goods and services.
City-level performance: Derby leads the UK
The Midlands’ strength is also reflected at the city level. Derby posted the fastest revenue growth of any UK city over the past two years, up 39.1%, topping the national rankings for the fourth consecutive quarter. Lincoln placed third, giving the East Midlands two of the country’s three fastest-growing urban areas.
Government-backed initiatives such as the £10 million ‘Team Derby’ programme, alongside major private-sector investment from companies including Rolls-Royce, are helping reinforce the region’s industrial ecosystem and create opportunities for SMEs and local supply chains.
Sector strengths and the rise of AI adoption
Nationally, real estate recorded the strongest revenue growth of any sector in Q2 at 12.4%, followed by agriculture at 8.4%.
The East Midlands’ performance reflects a region building on its industrial foundations. Construction, professional services and real estate are all expanding faster than their UK counterparts, supported by ongoing investment. Manufacturing remains central to the region’s economy, contributing around £17 billion annually and supporting more than 300,000 jobs.
Technology adoption is also accelerating. Research from Enterprise Nation shows that while only one in five of the UK’s 5.7 million small businesses use AI regularly, 83% of AI adopters in the East Midlands increased their use of AI over the past year, highlighting how digital tools are helping firms boost productivity and resilience.
Momentum beyond the Midlands
The North East is also seeing positive movement, with average small business revenues rising 1.5% and real-terms profits increasing 4.3%. The region’s AI Growth Zone is leveraging strengths in digital technology, energy, advanced manufacturing and university-led innovation, demonstrating how regions that combine industrial heritage with technological capability are well positioned to drive the UK’s next phase of growth.
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