UK SMEs Face Mixed Conditions as Growth Revised Higher but Borrowing Costs Surge

The UK economy expanded faster than initially estimated in the second quarter, with growth revised to 0.5% and annual growth at 1.4%, though full-year 2025 figures were adjusted downward. Small businesses confront headwinds from elevated government and commercial borrowing costs, rising household debt, and weakening housing activity as September closes. Consumer borrowing accelerated significantly with credit card lending posting its fastest growth since 2004, while mortgage approvals hit their lowest point in three years.

The UK's economic performance presents a paradox for small business owners. While revised GDP figures show the economy performed better than first thought, the underlying financial environment has deteriorated significantly. Government borrowing costs have climbed to levels unseen since the late 1990s, reflecting broader concerns about public finances and potentially signalling tighter credit conditions across the economy. This creates immediate pressure on SMEs already managing higher operational expenses.

The consumer picture adds complexity. Household borrowing has accelerated sharply, particularly through credit cards at rates not seen in over two decades, suggesting consumers are increasingly reliant on debt to maintain spending. Simultaneously, the housing market is cooling noticeably, with mortgage approvals declining to three-year lows. For businesses dependent on customer payments, this combination of rising debt, weakening housing demand, and elevated borrowing costs raises the risk that customers may continue ordering while experiencing cash-flow difficulties themselves.