How SMEs are coping with inflation in 2026

Inflation has eased considerably from the peaks seen a few years ago, but it is still putting pressure on UK small businesses.

UK CPI inflation rose to 3.1% in August 2026, up from 2.9% in July and still above the Bank of England’s 2% target. Transport costs, particularly motor fuel, were the largest contributor to the latest increase. Office for National Statistics

For SMEs, the issue is not simply the headline inflation figure. Many businesses are dealing with higher wage bills, energy costs, fuel, tax and borrowing costs at the same time, leaving less room to absorb further increases.

Is inflation still a major concern for SMEs?

Yes. Inflation remains one of the biggest concerns for UK businesses in 2026.

The British Chambers of Commerce’s Q3 2026 Quarterly Economic Survey, based on responses from more than 4,300 businesses — 92% of them SMEs — found that 60% cited inflation as a concern. Taxation was the next biggest issue, mentioned by 52%. British Chambers of Commerce

Although that figure has fallen slightly from 66% in the previous quarter, it shows that inflation remains a significant issue for a large proportion of businesses.

The concern is particularly understandable because many companies have already been absorbing higher costs for several years.

Why are business costs still rising?

Labour, energy and fuel costs are among the biggest pressures facing SMEs.

Earlier in 2026, 73% of firms surveyed by the British Chambers of Commerce said labour costs were putting upward pressure on prices, while 52% cited utility costs. The pressure was particularly strong in sectors such as hospitality, transport and manufacturing. British Chambers of Commerce

More recently, fuel has become a growing concern. In September, the BCC reported that 52% of firms said fuel costs were contributing to higher prices. British Chambers of Commerce

That matters because higher energy and transport costs tend to feed through into many other areas, from deliveries and raw materials to supplier prices.

For a small business with less purchasing power than a large corporate, those increases can be difficult to negotiate away.

Are SMEs putting their prices up?

Many are, although businesses remain cautious about how much additional cost they can pass on to customers.

In the BCC’s Q3 survey, 43% of firms said they expected to increase their prices during the following three months. A majority, 54%, expected to hold prices where they were, while only 3% expected to reduce them. British Chambers of Commerce

That creates a difficult balancing act.

Increasing prices can protect margins, but it may also affect demand. Holding prices can help retain customers, but the business then has to absorb more of the increase itself.

For many SME owners, the decision is therefore less about whether costs have risen and more about how much of that increase the market will tolerate.

How are small businesses responding to inflation?

Most businesses cannot control inflation, so the focus is on protecting margins, improving efficiency and managing cash more carefully.

Common responses include:

• reviewing prices more frequently
• renegotiating supplier arrangements
• reducing unnecessary overheads
• improving energy efficiency
• automating repetitive processes
• holding less excess stock
• focusing on higher-margin products or services
• improving credit control
• delaying discretionary investment
• reviewing staffing and recruitment plans

Not every cost reduction is a good one, of course.

Cutting marketing, training or maintenance may help cash flow in the short term but create a bigger problem later. The aim is usually to remove inefficiency without damaging the things customers value.

Is inflation affecting business investment?

Yes. Investment remains weak, even where businesses are slightly more confident about future turnover.

The BCC’s latest survey found that only 17% of firms planned to increase investment during the next three months, unchanged from the previous quarter and still at a post-pandemic low. British Chambers of Commerce

The BCC’s September economic forecast also predicted that UK business investment would fall by 0.2% during 2026 before returning to modest growth in 2027. British Chambers of Commerce

For an SME, postponing investment can be understandable when costs are uncertain.

The risk is that delaying necessary equipment, technology or recruitment for too long can eventually limit productivity and growth.

That makes the quality of the investment increasingly important. Business owners are likely to be more selective about projects and expect a clearer commercial return.

What is happening to interest rates?

Bank Rate remains at 3.75%, which means borrowing costs are still considerably higher than many businesses became accustomed to during the years of very low interest rates.

The Bank of England held Bank Rate at 3.75% in September 2026. It also warned that volatile energy prices could push inflation higher again and said it would continue to assess whether rates were restrictive enough to return inflation sustainably to its 2% target. Bank of England

For SMEs, interest rates matter in several ways.

They influence the cost of:

• business loans
• overdrafts
• asset finance
• commercial mortgages
• acquisition finance

They can also affect customers. When households have higher mortgage or borrowing costs, discretionary spending can fall.

So even a business with little debt of its own can still feel the effect of higher rates.

Which sectors are feeling inflation most?

The impact is uneven because different businesses have very different cost bases.

Labour-intensive businesses tend to feel wage increases most strongly. Energy-intensive manufacturers are more exposed to utility costs. Transport and logistics businesses are particularly sensitive to fuel prices, while retailers can face pressure from both suppliers and weaker consumer demand.

The BCC reported earlier this year that labour costs were a concern for 85% of hospitality firms, 84% of transport and logistics businesses and 78% of manufacturers. Utilities were cited as a cost pressure by 75% of hospitality firms and 60% of manufacturers. British Chambers of Commerce

This is why there is no single answer to inflation for SMEs. A practical response depends on where the individual business is actually spending its money.

Is inflation expected to fall?

The current outlook suggests inflation may remain above the Bank of England’s target for some time.

The Bank warned in September that higher global energy costs were likely to push inflation further above its current 3.1% level. Bank of England

The British Chambers of Commerce currently expects CPI inflation to reach around 3.6% by the end of 2026, before easing to 2.3% by the final quarter of 2027. British Chambers of Commerce

Forecasts can change, particularly when energy markets and geopolitical events are volatile, but the broader message for business owners is straightforward: it may be sensible to plan on the basis that cost pressures will not disappear immediately.

What does inflation mean if you are planning to sell a business?

Inflation does not automatically reduce the value of a business, but it can expose weaknesses that buyers will want to understand.

A buyer is likely to look closely at whether a company has been able to maintain its margins while costs have risen.

They may ask:

• Has the business successfully increased prices?
• Are customers still buying at those prices?
• Have margins been maintained?
• Are supplier costs under control?
• Is there excessive reliance on one supplier?
• How energy- or labour-intensive is the operation?
• Is working capital being managed effectively?
• Has the owner delayed essential investment?

A business that has navigated a difficult cost environment successfully can demonstrate resilience.

Equally, if turnover has risen largely because of price increases while profit has fallen, buyers are likely to notice.

How can SME owners prepare for continued cost pressure?

The most useful starting point is to understand exactly where profitability is changing rather than relying on turnover alone.

An owner should be able to see which costs have increased, whether those increases have been passed on and which customers, products or services remain most profitable.

It is also worth stress-testing the business.

What would happen if energy costs rose again? How much further could wages increase before margins became uncomfortable? Could prices rise without damaging demand?

That kind of information is useful when running the business today and can become particularly valuable if you eventually decide to sell.

Thinking about selling your business?

If you are considering selling within the next few years, understanding how recent cost increases have affected your margins can help you see the business the way a buyer will.

At Intelligent, we can provide a free, confidential business Valuation Tool, alongside practical information about buyer demand and the factors likely to influence value.

There is no obligation to sell and no pressure to make a decision. It is simply an opportunity to understand where you stand.

No jargon. No pressure to sell. Just clear, useful advice.