Data released by the Office for National Statistics on the state of the economy reveals mixed fortunes for SMEs during 2024.
The study looked at inflation, economic growth and the labour market in the UK to identify economic trends for the remainder of the year.

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While the economy has contracted over the past two years, the ONS says there are “positive but weak” prospects for renewed growth this year.
In February, the British Chambers of Commerce forecast that the UK economy would grow annually until at least the end of 2026, but without any real momentum. The prediction followed the disappointing news that 2023 officially ended in a recession in the third and fourth quarters.
The economy is expected to grow by 0.5% by the end of 2024 and by 0.7% during 2025. A more marked improvement was forecast for 2026, when growth was projected to be 1%.
SME business growth
The ONS report revealed 21% of businesses experienced a decrease in their turnover between March and April 2024. However, 19% of businesses enjoyed a higher turnover during the same period.
Expectations were generally lower among SMEs, with only 18% of respondents polled in early May 2024 projecting an increased turnover in June. This compared with 22% of business owners surveyed in April 2024 who were expecting an upturn in their fortunes in May.
An increasing number of SMEs aren’t expecting any changes in June, with 59% believing turnover will remain the same. Only 56% of respondents felt this way in April.
In 2023, business owners’ confidence dipped and reversed the gains made at the start of the year, according to the Federation of Small Businesses. At the start of the third quarter of 2023, the federation’s Small Business Index rated confidence at -8 points, but this had declined to -15 points by the end of the year, following news of the recession.
What is the inflation rate?
The UK inflation rate in April 2024 dropped to 2.3%, its lowest since May 2021.
After peaking at 11.1% in October 2022, inflation remained in double digits for seven months until March 2023, when it started to fall gradually.
Inflation measures rising prices right across the board, from goods and services to fuel and bills. A high inflation rate means it’s costing more for business owners to run their company.
In January 2023, inflation was still high at 10.1%, but despite a big drop to its current rate, mainly due to energy prices falling, costs haven’t gone down significantly. On the contrary, prices are still rising, just not as quickly as before.
According to the ONS data, 13% of businesses said their costs had increased again between March and April 2024. For many, this means passing the increase on to customers, which can negatively impact the public’s perception of the company.
Wage increases
Not all UK economy news is negative, as earnings are starting to rise again in real terms in comparison with inflation.
In August 2023, average weekly earnings had grown by 7.9% compared with August 2022. However, they then started to decrease again as the state of the economy worsened.
Average weekly earnings in the fourth quarter of 2023 were only 1.4% higher than in the corresponding period in 2022. This meant growth had again slowed down as rising prices eroded employees’ pay.
By February 2024, wages were increasing again, compared with prices, as a rise of 5.6% was recorded compared with the same period in 2023. Analysts say the wage growth has put earnings into “positive territory” at last.
Further pay rises in real terms are anticipated throughout 2024, helping workers to catch up to where they should have been had the cost-of-living crisis not kicked in.
This news is something of a double-edged sword, however, because while it’s a step in the right direction for employees, rising wages are likely to have a more negative impact on SMEs.
The latest increase in the minimum wage in April 2024 added an additional burden on small business owners, especially those already operating on slim profit margins.
The higher wage requirement is leading to increased expenditure for SMEs that impacts directly on their bottom line, according to a report published by Together Accounting.
The salary rate set by small businesses is a complex calculation, as having to pay a higher wage may mean owners can’t afford to employ as many people. However, it’s also likely to attract a higher calibre of applicants when the rewards are greater, as it creates more incentive for skilled employees to take a job.
Recent data suggests UK businesses are suffering a total shortfall of 2.5 million skilled workers, with 80% of small firms reporting they have faced challenges in recruiting staff with the appropriate skills in recent years.
Getting the balance right between taking on employees with the relevant skills for the role, without negatively impacting your profit margin, is crucial to any business’s future success.
How do the challenges impact SMEs?
Experts at the British Chambers of Commerce say the forecasts for economic growth of less than 1% for the next two years mean SMEs will still face challenges. They fear it’s unclear where any larger-scale growth of the UK economy will come from, leaving the trading climate in limbo indefinitely.
Studies have revealed 52% of SMEs have had to take out loans of some kind to survive since 2020. Trade barriers with the European Union since Brexit are also hitting investment in UK businesses.
The hospitality and retail sectors were already facing an uphill struggle as they tried to recover from the Covid lockdowns of 2020, when the economic climate nosedived. This has made trading continually challenging.
However, there are financial solutions out there for businesses who are struggling. A report on the comparison website Confused.com reveals borrowers who aren’t having much joy with traditional lenders are turning to logbook loans to replenish their bank account and help them survive these tough times.
Securing cash on your vehicle has become a more mainstream way of taking out a loan in recent years, as the number of people in the UK who have pawned their car has risen by 61% in the past decade.
Putting up your vehicle as collateral and being able to continue driving it during the repayment term is appealing to more people, partly due to the fact it has become simpler to complete an online application. Owners of SMEs have the potential to borrow up to £50,000 against their car, depending on its value. A sum that could make a significant difference to a small business’s efforts to survive the current economic climate.