Boost in small business hiring offset by slow sales growth 

UK small business hiring continued to show signs of recovery in the face of a challenging macroeconomic environment, with employment rising 1.4% year-on-year (y/y) in the first quarter of the year (January-March 2024). According to the latest Xero Small Business Insights (XSBI) data from global small business platform, Xero, this represents the largest hiring growth in two years for UK small businesses.

Xero’s data also revealed that wage growth rose to 3.3% y/y in the March quarter, from 3.2% in the December quarter. Increasing wages are an indicator that small businesses are working hard to fill vacancies. This is particularly evident in the hospitality sector, which experienced above average wage growth at 4.0% y/y, but only just above the national average at 1.8% y/y growth in hiring.

Early Easter impacts sales

Despite positive signs for jobs, small business sales growth remained slow, rising by just 0.5% y/y in the March quarter. However, the weakness over the last three months was largely due to the month of March, when sales fell 4% y/y, which can partly be attributed to the early Easter bank holiday, which hasn’t fallen in March since 2016.

Setting aside the unusual March data, the combined data for January and February showed sales rose 2.8% y/y. This still represents slowing growth compared to the 3.1%  y/y rise recorded in December. The retail industry has felt the biggest impact, with sales for small retailers falling 2.2% y/y – the fourth consecutive month of year-on-year decline for this industry. In contrast, arts and recreation (+8.5% y/y) and healthcare (+6.5%y/y) recorded the strongest growth.

Scotland and the North lead the way

Small businesses in Scotland and the North of England recorded strong results this quarter, playing a key role in improving economic growth.  The positive jobs growth was largely driven by the North East and North West of England, where small business employment increased by 5.2% y/y and 3.5% y/y respectively.  This is a significant increase from the previous quarter (October-December 2023) for the North East, when jobs grew just 1.0%.

Similarly, the North West of England and Scotland both saw above average wage growth at 3.6% y/y this quarter. In terms of sales over January and February, Scotland also outpaced the rest of the country, with a 5.7% y/y increase, similar to the 6.0% rise in the December quarter. Meanwhile, the North East of England saw sales rise by 4.7% y/y over January and February, following a solid 5.7% y/y rise in the December quarter.

Alex von Schirmeister, Managing Director, UK & Emerging Markets at Xero, said: “An appetite for hiring is a positive sign of growth amongst small businesses, but it doesn’t disguise the slow sales data we’ve seen over the last two quarters. There are some glimmers of stronger performance in Scotland and the North of England, but we need to see recovery across the UK.

“To accelerate this there are some preventable issues we can address immediately – small businesses must be paid on time. We’re still talking about late payments because our data shows it’s still getting worse. It’s crucial the government holds large firms accountable.”

Little progress on late payments 

The latest data shows small firms were paid, on average, 6.4 days late during January and February of this year1. This represents an increase of 0.6 days compared to the December quarter, following a decrease of 0.8 days in the second half of 2023. On average, small businesses had to wait 28.7 days to be paid – 0.3 days longer than the previous quarter.

Xero’s UK Small Business Index, part of XSBI, averaged 92 points this quarter (January to March). This is only 3 points higher than the last quarter (October-November), but a significant improvement on the month of December, which dropped down to just 79 points. You can read the latest quarterly results here. To find out more about how the Index is constructed, see the methodology.