Xero’s Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, rose three points across May and June, recovering slightly after falling by 11 points in April.

After 14 months of year-on-year (y/y) decline, small businesses finally saw tentative jobs growth in June, increasing by 1.1% compared to last year. It marks a welcome boost to the number of people employed by small businesses. 

Across the last three months, the strongest average monthly jobs growth was seen in the information, media and telecommunications sector (+4.2% y/y), while hospitality (-5.1% y/y) and retail (-3.9% y/y) businesses continued to struggle. In line with previous trends, London led the way with jobs growth (averaging +1.7% y/y in the three months to June).

This tight labour market has continued to push up wages for small businesses, however, the rate of growth has slowed slightly. In June, wages rose 3.6% y/y , the smallest y/y rise since December 2021. 

Modest sales growth in June but overall trend is still soft 

Sales revenue rose 7.6% y/y in June, but this came after rises of just 1.8% y/y in April and 0.4% y/y in May - leaving the average for the June quarter at just 3.3%. Sales growth also remains far below the average throughout 2022 (15.2% y/y).

As inflation remains high, selling goods and services is an uphill battle for small business owners. Using the June quarter CPI as a proxy for prices, sales volumes actually fell an average of 4.4% y/y in the three months to June.

Alex von Schirmeister, EMEA Managing Director, Xero, said: “We hope that the June results mark the start of a sustained growth in small business employment. But the very weak sales growth for April and May show that business owners are struggling. It's a reminder to us all about the importance of supporting local small businesses. The combination of inflation, rising costs and squeezed consumer spending makes for a very challenging environment, and it’s unacceptable that payment times to small businesses have continued to grow.”

Late payments continue to grow

Payment times to UK small businesses by their suppliers have continued to creep up in recent months. In June, the average time to receive payment stretched to 29.9 days, up from 29.2 days on average in 2022.

Perhaps more concerning is how late these payments were. On average, small businesses were paid 7.9 days later than the agreed payment terms in June 2023, and significantly higher than the average of 6.4 days observed throughout 2022.

“It’s heartbreaking to see late payments continuing to impact small businesses. We’ve been calling for greater action and hope to see some positive policy changes following the UK government’s prompt payments consultation due out any day now,” continued von Schirmeister.

The Xero Small Business Index is part of the Xero Small Business Insights programme. You can read the latest quarterly results here. To find out more about how the Index is constructed, see the methodology.