The latest results showed that UK small-business wages have risen to their highest level since May 2022 as many firms battle to attract and retain employees in a competitive market.
Overall, the index rose by a healthy 7 points in January to 89 points driven by a boost in wages, stronger sales revenue, and a smaller decline in jobs.
Small-business salaries rose 4.8 per cent y/y in January — equal to the record high for this series recorded in May 2022. This is mirrored in the latest ONS earnings figures, where regular pay (6.7 per cent y/y) showed the strongest growth rate seen outside of the pandemic. All industries saw an uptick in wage growth, but the largest was in the information, media, and telecommunications (+5.9 per cent y/y) sector. The smallest wage rises were in rental, hiring, and real estate (+3.8 per cent y/y).
Alex von Schirmeister, UK managing director at Xero, said despite increasing wages and some improvement in employment levels, small businesses are still struggling to find the workers they need.
“National vacancy levels have softened but are still high by historical standards. This is forcing many business owners to offer larger pay rises to keep or attract new staff,” he said.
Rising wages could be having an impact on the job market and retention. While the number of people employed by small businesses declined 2.5 per cent y/y — the 10th consecutive month of year-on-year jobs decline — it was the smallest drop since April 2022.
London is leading the jobs recovery as the only region employing more staff than a year ago (+2.2 per cent y/y). However, traditionally large-employing industries like manufacturing (-6.1 per cent y/y) and hospitality (-5.8 per cent y/y) are lagging and employing far fewer people than they were a year ago.
Late payments continue to get worse for small businesses already struggling. Time to be paid rose by 0.6 days to 30.5 days in January, the longest payment time recorded since September 2020. In January, payments to UK small businesses were also late by an average of 8.4 days, a significant rise of 1.8 days since December 2022 and the highest level since August 2020.
“It’s unacceptable that payment times to small businesses continue to rise,” said Mr von Schirmeister.
“The outcome of the UK government’s late payments consultation cannot come soon enough — small businesses are critical to our economy and communities, but can’t drive UK growth without stricter policies to protect them.”
Elsewhere, sales revenue in January rose 5.1 per cent y/y, after a difficult Christmas trading period, with just a 2.7 per cent rise in December. Hospitality (+9.2 per cent y/y) and construction (+9.7 per cent y/y) saw large positive sales growth in January.
