This quarter, small retailers continue to experience weak sales growth, while hospitality had its softest summer sales growth since the pandemic lockdowns of 2020. Small businesses are yet to see the impact on consumer spending following the Bank of England's decision to cut the official base rate by 0.25 percentage points in August.

The retail and hospitality sectors also had some of the slowest jobs growth this quarter at +0.4 y/y and -0.4 y/y respectively.

Interest rate cuts yet to impact sales growth

Small businesses experienced only a modest 1.9% year-on-year (y/y) growth in sales for the September quarter, down from 4.5% y/y growth in the June quarter (April to June). This slowdown was most evident in the last two months, with a 0.7% y/y decline in August and a marginal 0.1% y/y increase in September.

The Bank of England's interest rate cut has yet to benefit the small business economy, with consumer-sensitive sectors like retail and hospitality experiencing sales drops of 3.6% y/y and 0.2% y/y respectively. In contrast, education and healthcare sectors showed resilience, growing 5.7% and 6.1% y/y, respectively.

There is cautious optimism that the possibility of even lower rates may boost sales in the coming months, with two further Monetary Policy Committee meetings due between now and the end of the year.

Alex von Schirmeister, Managing Director, UK & Emerging Markets at Xero, said: "Small businesses continue to face tough conditions, with consumer spending still constrained by increased everyday expenses. While we hope the rate cut will start to have a positive impact soon, small businesses need our support more than ever. We continue to advocate that any changes announced in the Budget really do place small business owners front and centre.”

Late payments show no sign of improvement

Average late payments, beyond the invoice due date, increased to 6.4 days in the September quarter, up from 6.0 days in the previous three months. This spiked in September, with the average payment 6.7 days late.

Small businesses are also waiting longer to receive payments, with the average time between issuing an invoice and being paid remaining high at 28.4 days, compared to 28.3 days in the previous quarter.

“As long-term campaigners on this issue, we welcome many of the steps the government is proposing to tackle late payments. But we need to see these measures implemented swiftly and the pressure kept on big businesses to pay on time. We want to see our late payment data trending downwards in the coming months.”

North East continues to outperform other regions 

While many regions experienced challenges this quarter, the North East of England posted the strongest sales growth of any region at 4.5% y/y in the September quarter. The region has been the best-performing for the past 12 months, bucking the national trend with consistently better-than-average small business sales.

This aligns with recent findings from NatWest’s Growth Tracker, indicating that economic growth in the North East has picked up, driven by increased activity in sectors such as manufacturing. The Natwest research also showed hiring by the region’s small businesses also hit its highest level in three years.

In contrast, Scotland, which led the UK in sales growth in 2023, saw its figures slow to just 1.6% y/y, marking the weakest growth among UK regions over the last quarter.

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