The report, commissioned by Microsoft and consultancy WPI Strategy, highlights a significant AI readiness gap among UK SME, despite widespread awareness of AI’s potential benefits. While 55% of SMEs know that the use of AI could add huge benefits to their operations, 46% admit to a lack of skills or understanding.

Barriers cited include a lack of clear guidance, insufficient internal expertise, and concerns about the upfront cost of AI adoption. The report warns that without targeted support and investment, many SMEs risk falling behind both domestic and international competitors who are already leveraging AI to enhance decision-making, customer service, and efficiency.

Zoe Kelleher, Club Executive, London, for AND Digital, commented: “During periods of economic uncertainty, customer retention becomes even more vital, but the reality is that customer experience and loyalty programmes often take a back seat. In fact, two-thirds of business leaders believe that without significant improvements to customer experience, their organisation will lose millions of customers within the next year, according to our customer loyalty research.”

“That is where AI comes in to deliver an intelligent customer experience, underpinned by strong data foundations and first-party data collection, delivering relevant, timely interactions, smarter personalisation, and recognising needs before they arise. AI can analyse customer trends, preferences, and engagement patterns to tailor experiences to target personas and ultimately boost customer retention, which is all the more important against the backdrop of economic turbulence.”

The findings underscore the urgent need for national and local policy initiatives aimed at improving AI accessibility and literacy among smaller businesses. In particular, the report calls for clearer pathways to adoption, affordable tools tailored to SME needs, and increased awareness of AI’s practical applications across sectors.

Stuart Harvey, CEO of Datactics, commented: “AI has huge potential to drive productivity and unlock growth for UK SMEs, but only if it’s underpinned by high-quality, well-managed data. From automating routine tasks to uncovering insights, AI tools rely on clean, structured, and reliable data to deliver real results.”

“Small businesses often face challenges with fragmented or inconsistent data, which can limit the impact of AI adoption. To realise the £78 billion opportunity highlighted in this report, it’s crucial that SMEs invest in better data practices, making sure their information is accurate, current, and governed effectively. This isn’t just a technical issue; it’s a strategic one. Good data fuels better decisions, reduces risk, and helps businesses build trust with customers and stakeholders.”

With SMEs accounting for more than 99% of all UK businesses and over half of employment, unlocking the full potential of AI across this segment is seen as a critical step toward achieving sustainable economic growth and long-term competitiveness.

As AI technology continues to evolve rapidly, industry experts are urging SMEs and policymakers alike to act now, transforming awareness into action to ensure the UK’s economic engine remains future-fit.