In February 2026, 94% of UK businesses were trading — 83% fully and 11% partially. That number alone tells you small and medium-sized enterprises are still the engine of the economy. But the same data shows staffing costs climbing faster than many business owners expected, recruitment bottlenecks refusing to ease, and energy prices sitting as a persistent worry. The businesses that keep driving forward are the ones treating these pressures as structural, not temporary.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
What these figures add up to is a business environment where staying open is not the same as staying comfortable. The gap between those who adapt and those who react too late is widening. Small businesses are the ones absorbing most of the volatility because they have less buffer. Understanding what the data actually says about costs, recruitment, and pricing is the difference between planning ahead and scrambling to catch up.
Here’s what you actually need to know.
Four Key Takeaways and One Central Idea
The central concept that runs through all of this is cost adaptation — the set of choices a business makes when its input costs shift permanently, not just for a quarter. Cost adaptation is not a single decision. It is a process of rebalancing pricing, headcount, premises, and technology in response to pressures that are not going away.
What I tend to notice when I look at the biggest challenges facing UK entrepreneurs is that the ones who survive these shifts are rarely the ones with the deepest pockets. They are the ones who see the data early and act on it before the pressure forces their hand.
What Happens When Cost Pressures Go Unchecked
The clearest signal in the research is the speed of change. In February 2026, 41% of businesses with 10 or more employees reported staffing costs had risen over the previous three months. By May 2026, that figure had jumped to 66% — a 25-point increase in just three months. That is not a gradual trend. It is a step change driven by the National Minimum Wage increase in April 2026 and ongoing pressure on wages across sectors.
The knock-on effect lands on pricing and headcount. Among businesses with 10+ employees, 44% said they would raise prices to cope with future employment cost increases. Another 38% said they would absorb the costs within their profit margins. That leaves 23% who said they would reduce the number of employees. Each of those responses has a different impact on the business — and on the wider economy. Raising prices risks losing customers. Absorbing costs eats into margins. Reducing headcount cuts capacity.
For a small business, the margin for error here is narrow. If you are a sole trader or a micro-business with fewer than 10 employees, you are making these calculations without the cushion of a large HR team or a finance department. The decision to raise prices or hold them can feel like a gamble either way. What the data makes clear is that waiting to decide is itself a decision — and often the most expensive one.
Where Businesses Misread the Landscape
Treating the minimum wage rise as a one-off event
The April 2026 minimum wage increase pushed 54% of businesses to report higher hourly wages compared to March 2026 — a 36-point jump from January. That is a direct hit, but the mistake is assuming the pressure stops there. The 66% of businesses reporting higher staffing costs in May suggests the ripple effects continue through wage compression, higher employer National Insurance, and pension contributions. A business that only budgets for the base rate increase misses the rest of the cost stack.
Assuming recruitment will fix itself
In January 2026, 20% of businesses reported recruitment difficulties, down from 29% in October 2025. The improvement is real, but it masks a deeper problem. Of those struggling to hire, 47% cited a lack of qualified applicants and 29% cited a low number of applications. That means the bottleneck is not just availability — it is skills. Businesses that wait for the market to deliver better candidates instead of adjusting their recruitment strategy, training offer, or wage position will keep losing time.
Ignoring the energy and fuel cost drag
In late May 2026, 62% of businesses reported some concern about energy prices, and 68% reported concern about fuel costs. For businesses with 10+ employees, the energy figure rose to 73%. The transportation and storage sector reported the highest fuel concern at 84%, followed by accommodation and food at 82%. These are not overheads you can negotiate away easily. Businesses that treat energy as a fixed cost rather than a variable one to be actively managed are leaving money on the table — or worse, letting it quietly drain their margins.
Comparing the three main responses to cost pressure
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| Response | % of businesses | Key trade-off |
|---|---|---|
| Raise prices | 44% | Risk of losing price-sensitive customers; competitive disadvantage |
| Absorb costs within margins | 38% | Protects customer base but reduces profit; not sustainable long-term |
| Reduce number of employees | 23% | Cuts immediate cost but reduces capacity and future growth potential |
What I would weigh most carefully here is the middle option — absorbing costs. In the short term it feels like the safest path. Over 12 months it can quietly hollow out a business. The research shows 38% of businesses are choosing this route, but the data also shows staffing costs are still climbing. That means the gap between revenue and cost keeps widening for anyone who holds prices flat.
Managing Cost Pressures Without Losing Momentum
Audit your labour cost structure before the next wage round
If you employ people, you need to know exactly where the next minimum wage or National Insurance increase will land on your payroll. The April 2026 rise pushed 54% of businesses to report higher hourly wages, and the 25-point staffing cost surge between February and May 2026 shows the full impact takes months to materialise. Run a scenario for a 5%, 7%, and 10% increase in total employment costs — not just base wages — so you are not surprised when the next round hits. Tools like JustAnswer Business can help you get quick clarity on employment cost obligations without waiting for a formal consultation.
Revisit your pricing model early and often
The 44% of businesses that said they would raise prices are not all doing it at once. Some will move early and lose a few customers. Others will wait and watch their margins shrink. The data suggests that the businesses adapting best are the ones making small, regular price adjustments rather than one large jump. If you can tie a price increase to a visible improvement in service or product quality, the risk of losing customers drops. The worst time to raise prices is when you are desperate — plan it while you still have room to choose.
Build a workforce strategy that does not rely on perfect hires
With 47% of businesses struggling to find qualified applicants, waiting for the perfect candidate is a losing game. The alternative is to hire for potential and train up, or to restructure roles so that skilled workers focus on high-value tasks while less specialised work is covered by a broader pool. The 20% of private sector businesses now using increased homeworking as a permanent model show that flexibility in where people work can widen the candidate pool significantly. If you limit yourself to a 30-minute commute radius, you are competing for a fraction of the available talent.
Treat energy as a negotiable cost, not a fixed one
With 62% of businesses concerned about energy prices and 73% of those with 10+ employees feeling the same way, the businesses that act on this will have a real advantage. That means comparing supplier rates more than once a year, checking whether your business qualifies for a fixed-rate tariff, and looking at subtle changes like shifting energy-heavy work to off-peak hours. The transportation and storage sector, where 84% reported fuel cost concern, shows how quickly an unmanaged energy line can erode margins. For businesses with remote or hybrid teams, ExpressVPN can reduce the security overhead of a distributed workforce, which is one less cost to worry about.
Use technology to absorb the tasks that do not need a person
Staffing costs are rising, but some of the tasks driving those costs can be automated or streamlined. The 20% of businesses using increased homeworking as a permanent model already know that a well-structured digital setup reduces the need for administrative headcount. Tools like MagicFit can handle AI-generated content, social posts, and image editing without adding to your payroll. The goal is not to replace people — it is to stop paying for work that software can do faster and cheaper, freeing up your team for the work that actually drives revenue.
Frequently Asked Questions
How much notice should I give before raising prices to cover staffing costs? ▾
If I reduce employee hours instead of cutting headcount, do I still pay employer National Insurance? ▾
Are businesses outside London seeing the same cost pressures? ▾
What percentage of businesses are still not trading at all? ▾
Does the 44% of businesses raising prices include VAT-registered businesses? ▾
If I am a sole trader, should I use the same cost adaptation strategies? ▾
What the Next Year Looks Like for Small Business Resilience
The research shows that by late May 2026, 95% of businesses were trading — 83% fully and 11% partially. That is essentially the same as February’s 94%. The economy is not contracting. But the composition of who is growing and who is just holding on is shifting. The businesses that come out of this period stronger are the ones that read the data on staffing costs, recruitment bottlenecks, and energy prices as a single interconnected problem, not three separate headaches.
If you are running a small business, the question is not whether costs will keep rising — the data says they will. The question is whether your pricing, workforce, and cost structure are set up to absorb the next wave without breaking stride. The businesses that answer that question now, rather than after the next ONS wave shows another jump, will be the ones still driving the economy forward a year from now.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Digital Transformation in the UK: Staying Ahead of the Curve in a Rapidly Evolving Market.
Sources and Further Reading
From Start-Up to Scale-Up: The Biggest Challenges Facing UK Entrepreneurs — A closer look at the growth hurdles small businesses face once they get past the startup phase.
The Power of Partnerships: Why Collaboration is Key to UK Business Success — How working with other businesses can help spread cost pressures and open new revenue streams.
Office for National Statistics (2026). Business insights and impact on the UK economy, Wave 151 (February 16 – March 1, 2026). 🔗
Office for National Statistics (2026). Business insights and impact on the UK economy, Wave 157 (May 18–31, 2026). 🔗
