Home Business NewsBusinessBusiness Growth Xero’s Small Business Index at highest point since November, but smaller labour market still hampers full economic recovery 

Xero’s Small Business Index at highest point since November, but smaller labour market still hampers full economic recovery 

by LLB Finance Reporter
28th Apr 22 12:00 pm

Small businesses in the UK have charted a full year of positive sales growth, showing a more consistent recovery for the post-pandemic economy, according to new insights from Xero, the global small business platform.

The Xero Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, rose to 92 points in March. Sales grew once again in March 2022, with an increase of 13.5 percent year-on-year (y/y). This means on average, small businesses have seen year-on-year sales growth every month since March 2021.

The hospitality sector saw sales rise 86.6 percent y/y, but this was due to the poor figures at the start of the pandemic. However, even when using the two-year annualised growth adjustment, hospitality sales still increased by a strong 28.4 percent. The other strongest sectors were administrative support (25.9% y/y) and manufacturing (16.9% y/y).

In spite of challenging conditions, all regions across the UK recorded double-digit sales growth last month. Small businesses in London (17.7% y/y) spearheaded this, but also those in the North West of England (16.9% y/y).

The jobs market challenge

While positive sales growth has boosted the Index, the jobs market is proving to be a major obstacle. There are still 7.4 percent fewer people working in small businesses than there were in February 2020.

However, Scotland and London are proving to be the exception and leading the charge with more people now employed by small businesses than in February 2020. London has seen a 3.6 percent increase and Scotland a 0.1 percent increase.

In contrast, the West Midlands still has 13.2 percent fewer small business jobs and the South East 12.4 percent, than before the start of the first lockdown.

The Index also reveals that wages grew 4.2 percent y/y in March, representing the third consecutive month of wage growth over 4 percent. These numbers, in part, reflect catch-up after very low wage growth through 2020 and early 2021. However, rising inflation and the challenging jobs market are forcing small businesses to pay higher wages to navigate a reduced talent pool.

Alex von Schirmeister, UK & EMEA Managing Director at Xero, said, “It would be too easy to celebrate this post-pandemic growth and recovery. The stark reality is that small businesses are still facing real uncertainty and headwinds, with inflation, access to staff, and geopolitical risks as chief concerns.

“We need the Government to do more to help support and nurture small businesses, which are the backbone of the UK’s economy”

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