UK small businesses are continuing to feel the squeeze from rising operating costs and uncertain consumer demand, with 82 per cent reporting an increase in costs over the past year, according to recently released Simply Business’ latest SME Insights Report.
For convenience retailers, the findings highlight the difficult choices facing independent businesses as they attempt to protect customers from further price increases while maintaining already tight margins.
The report, based on a survey of UK small business owners conducted in July and August 2026, found that financial uncertainty, high running costs and weak or unpredictable consumer demand are among the biggest challenges facing SMEs.
48 per cent cited an unpredictable economy or financial uncertainty, 41 per cent pointed to high running costs, while 35 per cent highlighted lack of or uncertain consumer demand.
Absorbing the pressure
The pressure is not simply being passed on to shoppers.
The report found that 82 per cent of small business owners have absorbed some or all of their increased operating costs, while 57 per cent have raised consumer prices over the past 12 months.
That presents a familiar dilemma for convenience stores, where shoppers are highly sensitive to price but retailers have little room to absorb further cost increases.
The research identifies raw materials and supplies and utilities as the most common areas of rising costs, with more than half of respondents reporting increases of up to 20 per cent.
Simply Business warned that absorbing costs indefinitely could put businesses at risk in the longer term.
Fi Titus, chartered accountant and co-founder of CoCo Financial and Fineo, said businesses cannot control the wider economy but can focus on areas such as cash flow, pricing and their target market.
Policy uncertainty adds to pressure
For independent retailers, cost pressures are being compounded by concerns about the wider business environment.
65 per cent of respondents said the frequency of policy changes was disrupting their long-term planning, while 43 per cent expected the economy to worsen over the next 12 months.
The report points to changes affecting employers and businesses, alongside broader cost-of-living pressures, as factors making it harder for owners to manage day-to-day operations while planning for the future.
Making Tax Digital is another concern, with 19% describing its rollout as one of the biggest challenges facing their business. A quarter said they were concerned about making a mistake, while 20% said they did not understand it.
VAT threshold tops government wish list
Small businesses are also calling for changes to ease the financial burden.
Increasing the VAT registration threshold was identified by 24% as the most important action the government could take, ahead of maintaining or increasing business rates relief, cited by 19%. Reducing corporation tax was selected by 27%, while 20% called for an increase in the employer National Insurance threshold.
The VAT threshold is particularly significant for smaller retailers approaching the point where registration could affect pricing and margins.
The report says businesses can be cautious about crossing the threshold because of the impact current tax conditions can have on growth.
AI moves into the toolkit
While costs remain a major concern, the report also points to a growing appetite among small businesses to use technology to improve productivity.
Nearly half (47 per cent) of UK small business owners now use AI tools, up from 22 per cent in 2025, while another 13 per cent plan to start using AI within the next six to 12 months.
Among those already using AI, common applications include content creation, problem-solving, generating ideas and saving time on administrative tasks.
For convenience retailers, the findings point to potential uses around routine administration and content creation, although confidence remains a barrier. Thirty-one per cent of respondents said they were not confident enough to use AI for work, while 31 per cent of non-users said they did not understand how to use it.
Security and privacy concerns were also the biggest barrier, cited by 44 per cent of businesses not currently using AI.
Resilience despite the squeeze
Despite the challenging backdrop, the report paints a picture of small business owners determined to keep going.
About 45 per cent remain confident about their business prospects over the next 12–18 months, while 87 per cent say running their business gives them a sense of personal meaning and accomplishment.
For many, that motivation extends beyond financial returns. Three-quarters say the freedom of being their own boss is the most rewarding part of running a business, while 52 per cent are motivated by seeing customers enjoy their product or service and 28 per cent by connecting with their local community.
That community connection is particularly relevant to convenience retail, where the local store often sits at the heart of its neighbourhood.
The message for independent retailers is therefore one of resilience, but with margins under continued pressure: absorbing costs may protect customers in the short term, but controlling cash flow, pricing carefully and finding efficiencies will be increasingly important if that resilience is to be sustained.
The report surveyed 1,858 UK small business owners between 30 July and 7 August 2026, covering businesses across different sizes and industries, including high street shops and sole traders.