The UK’s small business community is beginning to show renewed confidence, but rising employment costs, economic uncertainty and cash flow pressures continue to hold back growth for the hospitality sector, according to new research from alternative finance provider Capify.
Published as Andy Burnham becomes PM, the latest Capify Business Confidence Report provides a snapshot of the opportunities and challenges facing hospitality SMEs.
Based on a survey of hundreds of business owners from the hospitality sector and beyond, the report highlights growing financial concerns for many.
Almost seven in 10 businesses experienced higher operating costs during the last quarter, while more than a third now find it difficult to access finance – up significantly on the previous survey.
The report concludes with five ways that a new PM could support smaller hospitality businesses, beyond the recent rates reduction for pubs, clubs and live music venues. Each one is based on a key finding:
Employment taxes are putting pressure on hospitality hiring
Employment-related taxes have the biggest impact on hiring decisions, affecting 85% of SMEs, with wage inflation and employer legislation also influencing recruitment. For hospitality businesses, where labor is one of the largest operating costs, the findings highlight the challenge of balancing customer service with rising employment costs, particularly at a time when many venues are looking to grow.
AI adoption remains cautious
Sixty per cent of SMEs say AI has had little or no positive impact on their business so far. While larger hospitality operations have begun adopting AI for areas such as marketing, bookings and customer service, the findings suggest many smaller businesses are still looking for practical applications that deliver a clear return on investment.
Cash flow remains under pressure
More than 70% of SMEs say delayed payments affect their business, restricting cash flow and delaying investment. While hospitality businesses are less exposed to invoice payments than some sectors, strong cash flow remains essential for managing seasonal demand, controlling costs and investing in equipment, refurbishments and growth.
Skills shortages continue to challenge employers
A quarter of businesses say recruiting skilled employees is their biggest staffing challenge, underlining the continued importance of strengthening the UK’s skills pipeline. For hospitality, attracting and retaining experienced chefs, managers and front-of-house staff remains a key challenge as businesses seek to improve service while controlling employment costs.
Confidence is improving – but operators remain cautious
Confidence in the UK economic outlook remains low at 22%, although this represents a ten-percentage-point improvement since Q1 2026. More than four in ten SMEs are less confident than they were a year ago, yet the proportion describing themselves as extremely confident in their own business has doubled. For hospitality operators, the findings reflect a sector where a minority have become more optimistic about future trading, while the majority remain cautious about rising costs and the wider economic outlook.
“The timing of this report provides an interesting snapshot of sentiment among smaller hospitality businesses and the wider SME community. While confidence is beginning to recover for some, many more struggle to protect margins, manage cash flow and secure finance,” says John Rozenbroek, COO at Capify. The report identifies five ways the incoming Prime Minister can help smaller businesses, including reducing employment costs, improving workforce skills, and supporting AI adoption.”
Read the full report here
The Capify SME Business Confidence Q2 Report explores how SMEs are responding to economic uncertainty, cash flow challenges and investment decisions.
