If you ran a micro‑business in 2025, a sole trader or an embryonic start‑up, you probably spent the year feeling as if you were cycling up Box Hill with a sack of bricks strapped to your back.
Taxes rose, prices rose, confidence faltered, and yet there were also glimpses of opportunity in artificial intelligence, renewable power and a mercifully calmer labour market. It was a year that made you say “wow”, though not always for the right reasons.
The big issue was the tax burden. Rachel Reeves’s autumn Budget from 2024 continued to reverberate. The British Chambers of Commerce found that by December 63 % of firms were worried about taxes, and only 49 % expected their turnover to increase. Employer National Insurance contributions went up and have hit small firms disproportionately because they cannot spread costs across large payrolls.
Many entrepreneurs shelved hiring plans and froze investment; the BCC predicts that the economy will grow by only 1.2 % in 2026. Even those focusing on exports faced headwinds: 62 % of exporters to the United States expected Donald Trump’s proposed tariffs to hurt them, and over 54 % of exporters still struggled with EU trading rules.
At the macro level the economy limped along. The Office for National Statistics reported that GDP grew just 0.1 % in the third quarter, with production actually shrinking. Real household disposable income fell 0.8 % and the saving ratio dropped to 9.5, hardly a climate conducive to small business sales. Inflation did ease; the Bank of England noted CPI inflation at 3.2 % in November and cut the Bank rate to 3.75 %, with expectations that it will fall towards 3 % in early 2026. But the bank also warned that GDP growth was stalling and forecast zero growth in the last quarter of 2025.
For sole traders, the cost of labour remained a pressing concern. The ONS’s Business Insights and Conditions Survey showed that 30 % of trading businesses planned to raise prices in January 2026 because of higher labour costs, and a third cited economic uncertainty as the primary challenge. As a hairdresser, café owner or freelance designer you may have considered raising your prices or cutting hours simply to stay afloat.
There were also some very visible casualties among larger SME peers. The high street continued its slow collapse: Bodycare closed all 147 stores, making 1,500 staff redundant; Amazon Fresh shut its 19 till‑free supermarkets; Beales, Beaverbrooks, Claire’s and New Look all downsized or entered administration. Forbes Burton estimated that more than 120,000 jobs were affected by business closures. If you depended on footfall from a local shopping centre, those closures hurt.
Yet 2025 wasn’t all doom. Small businesses in the green and digital sectors enjoyed remarkable tailwinds. Britain’s wind turbines generated a record 23,825 MW in early December, supplying nearly half of the country’s electricity. Solar output broke records, with 14 GW on the grid in July and total generation up 32 % in the first half of 2025.
For electricians fitting solar panels, consultants specialising in ESG reporting or start‑ups developing energy‑efficiency software, this boom created an expanding market. On the export front the UK’s defence industry sold more than £20 billion of kit, including frigates for Norway and Typhoon jets for Turkey. That brought supply‑chain opportunities to small manufacturers and sub‑contractors.
Artificial intelligence was perhaps the single most talked‑about opportunity. A survey by the BCC and Intuit found that 35 % of SMEs were using AI in 2025, up from 25 % the year before. Another 24 % planned to adopt it; only a third had no plans.
B2B services were leading the way, with 46 % adoption, while just 26 % of manufacturing SMEs used AI Most used AI for content creation or administrative work – generating social media posts, invoices or proposals.
Tools like OpenAI’s ChatGPT and image generators allowed sole traders to operate with the marketing reach of a larger firm, as long as they invested time in learning them. Tech heavyweights noticed: Nvidia promised £500 million to build NScale, a cloud platform that will deliver 120,000 GPUs in the UK, roughly 100 times the computing power of our current fastest supercomputer. Synthesia raised £146 million and Oracle pledged £3.9 billion. All of this points to cheaper, faster AI services in the years ahead.
Business groups do warn that the external environment will remain tough in 2026. The CBI upgraded its GDP growth projection to 1.3 % but said that the improvement is largely due to short‑term government spending. It noted persistent weakness in private demand and predicted that business investment would remain subdued. Rising labour and energy costs and a complex tax system continue to strangle growth. The Guardian reported that the CBI’s private‑sector growth indicator fell to −30 %, signalling a downturn across all sectors. Job vacancies shrank for a fifth straight month. Meanwhile, the strike wave that began in 2022 continued to disrupt supply chains. NHS doctors planned another walkout, universities were striking over pay, and rail workers threatened a national strike. For a sole trader reliant on trains to deliver goods or on childcare services to free up your workday, these disruptions are more than a headline; they’re a day’s trading lost.
On the brighter side there are some reasons for optimism. The OECD believes growth will pick up slightly to 1.2 % in 2026 and that inflation will fall to 2.5 %. The Halifax predicts house prices will rise by 1–3 % next year, which could encourage homeowners to loosen their purse strings. The government’s Budget included a £150 reduction in household energy bills from April 2026 by shifting some renewable obligations onto the Treasury. Combined with falling mortgage rates, that could lift consumer spending a little. A December Purchasing Managers’ Index reached 52.1, indicating the strongest growth in new service‑sector business in over a year. Productivity rose 1 % in the first half of 2025, and some analysts think AI adoption is finally nudging British firms to invest in efficiency.
If you are running a small business in 2026, what should you do? First, embrace digital tools. Free or low‑cost AI platforms can help with marketing, customer service and even product design. Second, keep an eye on energy costs, solar panels or energy‑efficiency upgrades may qualify for subsidies and cut your bills in the long run. Third, watch for government support: the SME Digital Adoption Taskforce has been advocating for funding and training, and the Warm Home Discount has been expanded. Fourth, build resilience into your operations. Industrial disputes and supply‑chain disruptions are becoming structural; flexible working arrangements and diversified suppliers will reduce your vulnerability. Finally, remember that behind the gloom there is a long‑term shift towards a greener, more digital British economy. If you can survive the bumps in the road, the occasional “wow” moments, there is real scope for small, agile firms to thrive.
