A year on, British businesses are still stuck in survival mode

Last year, we released a report on productivity among UK SMEs which found that one in three (32%) were stuck in survival mode, unable to grow.

One year later, we’ve released a new report specifically on the use of AI among small businesses and their employees, and whether business sentiment has changed 12 months on.

Sadly, the picture remains largely unchanged. In 2026, 36% of small businesses in the UK say they’re stuck in survival mode. The change is minimal, but it’s going in the wrong direction.

If you run a small business, you probably aren’t surprised to hear that. In one year, you’ve navigated rising employment costs, regulatory change, geopolitical uncertainty, and more recently, a Prime Minister resignation. Put it all together and it’s no wonder small businesses are struggling.

12 months of declining confidence

While the initial story is one of survival, I think it’s important we take time to understand what’s fuelling it. Across nearly every operational pressure point we tracked, things have gotten worse, not better for SMEs in 2026 so far.

Hiring challenges are up from 77% to 84%. Inefficient processes – already a problem for three in four businesses last year – are now hitting 84%. Difficulty managing compliance has jumped from 68% to 78% and retention issues are up from 77% to 82%. Put simply, the basics of running a business are getting harder, not easier.

I wanted to understand where technology fits into this. AI is meant to be the lever that lets SMEs level the playing field and ease exactly these pressures, so why aren’t we seeing that?

The AI advantage gap widens

The data points to a persistent AI advantage gap between small and large businesses. The difficulty of keeping up with technological advancements has increased: 81% of SMEs now find that a challenge, compared to 77% last year.

Usage tells the same story. 44% of businesses on the smaller end (5-49 employees) have advanced or moderate usage of AI. At first glance, that figure looks okay, until you compare it with their larger counterparts, 68% of which are using AI moderately. AI investment is also an issue. 24% of small businesses said they are either not investing or decreasing spend in AI, more than four times the rate of larger businesses (5%).

If small businesses aren’t using AI as much and are also investing in it less, then we risk widening the AI advantage gap.

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Whatever value AI is generating right now is concentrating at the top, with businesses that have the team and the budgets to invest heavily. That means that the businesses who most need relief from compliance stress, hiring friction and inefficient processes are the ones least equipped to do so – and the cycle continues.

This is worrying because, despite some scepticism about adopting AI, 78% of small businesses said they’ve seen an increase in productivity since introducing it.

If AI is going to be the great equaliser it’s often pitched as, something has to change. SMEs are the backbone of the UK economy and a widening two-tier system – thriving enterprise, surviving small business – is a problem for all of us. The tools exist. The task now is making sure they reach the businesses that need them most, not just the ones that can already afford to wait and see.