Concerns around recession, inflation, and high operating costs are causing distress to UK small businesses as they enter this year, according to new SME Outlook 2023 research from iwoca – one of Europe’s largest small business lenders.

Recession concerns widespread among SMEs, research finds

As the UK economy shrinks, and high inflation coupled with increased interest rates hit consumer spending and businesses, over two in five (43%) small business owners identify a recession as their top concern in 2023.

In the context of soaring prices of energy, raw materials, and the scarcity of labour, inflation remains the main challenge for over a third (38%) of small businesses. The effects of inflation – decreased consumer spending (29%) and increased business running costs (38%) – are also cited as key worries for UK small business owners.

As the future of government support with energy bills hangs in the balance, over three-quarters (76%) of small business owners are concerned that energy bill support for businesses may be scaled back in the first half of this year. One in three (32%) SMEs expressed significant worry around the potential decrease in government energy support.

Small businesses brace for a difficult year

The data also reveals that a quarter of small businesses (25%) expect their turnover to shrink in the next twelve months, up a third on last year’s figures. This comes as more than two in five (43%) SME owners think they will personally be worse off by the end of 2023, up from a third a year ago. Echoing this outlook, just a quarter (26%) of small businesses expect revenue to grow over the next year, down from 28% at the start of 2022.

On hiring in 2023

As small business owners brace for little to no growth in 2023, they foresee limited hiring in the next 12 months. Eight in ten (79%) small business owners expect to employ the same number of workers this year as they did in 2022, and only 7% suggest they would employ more staff over the year, a 2pp drop on last year.

Seema Desai, iwoca’s COO, said, “This recession presents extreme uncertainty for small businesses. As big banks retrench, our job as a specialist SME lender becomes even more important. Business owners are going to need finance to help with cash flow, pay staff wages, increase stock and of course cover things like higher energy bills and cost of materials.”