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The role of small businesses in the UK economy

Over the last few years, the UK economy has seen a combination of issues. These have presented a mixture of advantages and disadvantages for small businesses.

An increase in consumer price inflation (CPI) and a dampening in household real income growth meant consumers have been able to spend less. This has obviously been hard for most small businesses. But, for export oriented businesses, a drop in the value of the pound also means international buyers are getting more for their money.

The UK economy is underperforming compared to our European competitors and the state recognises that to grow the economy, it needs to support small business growth.

But why exactly are small businesses so important to the UK economy?

Why small businesses are important to the UK economy


Typically, this is one of the first metrics that springs to mind when measuring economic contribution, and while it is not the only one, it is important. Small and medium sized businesses had a combined turnover of £2.0 trillion in 2018. While this is a significant figure in itself, it’s even more impressive when you consider that it amounts to a whopping 52% of the private sector’s overall turnover.


Although the majority of small businesses are not employers – for instance, sole traders who work independently – SMEs still make a huge contribution to job creation” in the UK. Small businesses employ over 16.3 million people in the UK, which accounts for 60% of all private-sector employment.


When it comes to business growth, SMEs have been doing well. With employment rate at a record high and 50% of SMEs saying they’ll expand their operation this year, outlook is positive.

In terms of business success and growth, manufacturing business owners are reported to be the most confident.

Manufacturing business owners


Small businesses account for a huge 99.5% of the businesses in every main sector. The highest volume of small businesses are in personal services, such as beauty and wellness, as well as professional services like financial services or consulting.

The small and medium sized firms of the UK have a mutually beneficial relationship with the country’s overall economy – SME contributions are vital to economic health, and the state of the UK’s economy impacts small business growth.

A plan to support UK SMEs and grow the economy

With a vision for “the world’s most innovative economy and a challenge to “put the UK at the forefront of the artificial intelligence (AI) and data revolution”, the government is investing £725m in research and development as part of their Industrial Strategy.

Businesses are now being rewarded for innovation and encouraged to explore the possibilities of AI in the workplace. This focus on data and technology will help smaller companies to make more informed decisions and bring otherwise unattainable strategies to life. For more information about the government investment in research and development, read our article.