Confidence among UK small and medium-sized enterprises (SMEs) has improved noticeably in the last three months. That is welcome news, but anyone reading it as the start of a recovery should look more closely at what the data actually says, and at what it asks of the Chancellor this week.
A rebound from a very low base
The latest Global Economic Conditions Survey (GECS) for Q3, which ACCA runs jointly with the Institute of Management Accountants (IMA), suggests accountants remained cautious in Q3, but other indicators point to a resilient global economy. In the UK, it shows UK SME confidence rising from the near-record low we saw in Q1, when conflict broke out in the Middle East.
Yet it still sits in the low range it has occupied since late 2024. Calling that a turnaround would overstate it. Businesses are less gloomy than they were, but they are far from convinced.
The underlying indicators tell the same story. The New Orders Index and the Investment in Team Index rose, but they are still significantly below their historical average. The Capital Expenditure and Employment Indices both fell slightly, and both are at very depressed levels, with employment at a series low.
Those are the measures that matter most for long-term growth. Firms that are not investing or hiring are not expanding, and a rebound in sentiment means little if it does not turn into decisions.
Early signs of easing stress
There are positives. The proportion of UK respondents reporting increased operating costs fell, although the overall figure remains elevated by historical standards. The early indicators of corporate stress also moved in the right direction. Problems securing prompt payment dropped sharply, though they remain above average, which matters because late payment can quickly turn a cash-flow squeeze into a survival question for a small business. Concerns about suppliers going out of business fell back to an average level. Concerns about customers going out of business increased, but remain in line with other readings over recent years. And problems accessing finance are not currently an issue for UK respondents.
Taken together, that is a business community that is stretched but not breaking. Finance is available and stress indicators are easing. What is missing is the confidence to put either to work.
Why the Budget matters so much
That is why the timing of the Budget is so important. Our respondents continue to point to the same headwinds: the increase in employer national insurance contributions, the conflict in the Middle East and its impacts, and political uncertainty. The Chancellor cannot change the first two overnight, but the third is largely in the Government’s hands.
Uncertainty is itself a cost. When businesses cannot predict what the tax system or the policy landscape will look like in 12 months, they defer investment, hold off recruitment and keep cash in reserve. For SMEs, which have less capacity than larger firms to absorb surprises, the effect is even sharper. A fragile recovery in confidence can be undone quickly by a Budget that adds new burdens or leaves businesses guessing about what comes next.
So, the tone of the Budget matters as much as the detail. Businesses need stability and certainty to plan and deliver growth. A package that gives clarity on direction, avoids piling further pressure on employers, and makes clear the Government’s long-term plan would help to turn tentative confidence into real activity.
What good looks like
I would suggest three simple improved confidence tests for the Budget.
First, does it give predictability? SMEs can adapt to almost any policy if they know it is coming and that it will last. It is sudden change that undermines planning.
Second, does it recognise the cumulative pressure on employers? Higher employment costs sit alongside elevated operating costs, and employment is already at a series low in our survey. Further strain risks making that worse.
Third, does it keep the focus on the long term? With early indicators of corporate stress falling back, the Government has an opportunity to stay the course and show that it is committed to creating the conditions for business investment to return.
An opportunity, not a given
The UK economy remains a very challenging operating environment, and nothing in the latest GECS suggests otherwise. But the direction of travel on stress indicators is encouraging, and the improvement in confidence shows that SMEs are ready to respond to a more settled backdrop.
The Budget is a chance to build on that. If the Chancellor gets the tone right, a fragile rebound could become the foundation for investment, hiring and growth. If not, we risk a return to the low readings we saw earlier this year.
Key takeaways
- ACCA’s Global Economic Conditions Survey (GECS) for Q3 2026 shows UK SME confidence has improved over the last three months, but it still sits in the low range the index has occupied since late 2024.
- The New Orders Index and Investment in Team Index both rose in the latest survey, but remain significantly below their historical average.
- The proportion of UK respondents reporting increased operating costs fell in the latest survey, suggesting cost pressures are easing even though the overall figure remains elevated.
- Glenn Collins sets out three tests for the Budget to pass: does it give businesses predictability, does it recognise the cumulative pressure of higher employment and operating costs, and does it keep the focus on the long term?
- Uncertainty itself carries a cost for SMEs – when businesses cannot predict the tax system or policy landscape over the next 12 months, that unpredictability alone constrains hiring and investment decisions.
