Small business growth forecasts in the North of England have fallen sharply, with a rising number of SMEs predicting contraction or even closure, according to new data from Novuna Business Finance.

Following the Bank of England cutting interest rates and reducing its economic growth forecasts for 2025, the new data reveals that UK small business owners are already gearing up for contraction, with major falls in growth forecasts already registered across many key regions – where there has been abrupt change since the start of 2025.

The Novuna Business Barometer, which tracks quarterly growth predictions from over 1,000 small business owners, shows that whilst 45% see Q1 as a standstill period, there is a four-year high in the percentage of small businesses saying they will contract by the end of March (13%) and the percentage of enterprises that fear closure in the next three months has hit a two-year peak (8%).

Across the North, businesses are feeling the pressure, with confidence declining in key regional economies:

North East: One of the hardest-hit regions, with growth forecasts plunging from 36% in Q4 2024 to just 25% in Q1 2025, the lowest confidence level recorded in two years.
North West: A slight increase in growth expectations, from 34% to 37%, faring better than other areas.

Whilst growth outlook held firm in many sectors, Q1 2025 saw significant falls in small business growth outlook for the manufacturing, retail, IT and hospitality sectors. Growth outlook in manufacturing fell to its lowest level since Q4 2023.

Many industries across the North are under strain:

Manufacturing (North West & Yorkshire): Growth forecasts down 6 percentage points to 27%, as rising costs and global supply chain challenges persist.
Retail (North East & North West): Declined 8pp to 33%, with consumer spending uncertainty weighing on confidence.
IT & Telecoms (Yorkshire & North West): 38% of businesses predict growth, but this represents a 12pp drop, the sharpest sector decline in the North.

The confidence boost following the UK general election in 2024 appears to have faded, while uncertainty surrounding the US presidential election is adding pressure. 77% of small businesses fear potential ripple effects from changes in US policy, particularly around tariffs on UK exports (43%) and economic growth forecasts (33%).

Joanna Morris, Head of Insight at Novuna Business Finance, said:
“Over the last 11 years, our research suggests that small businesses are remarkably resilient when it comes to their quarterly growth forecasts. The fall for this quarter represents a reverse on a gradual upward trend over the previous six months. Of concern are signs of more small businesses predicting contraction for the next three months - and some even fearing closure.

“From the Business Barometer study over the last decade, it is clear that there are often fine margins between businesses that predict growth or contraction and decline. Now is a time for small businesses to be supported, so caution and contraction can be replaced by confidence and belief. At Novuna Business Finance, we are serious about helping established small businesses put plans in place to achieve their true potential and, midst the market uncertainty, small business confidence this year will be key to the new Government delivering on its pledge to deliver economic growth.”

With economic uncertainty, regional disparities, and sector-specific downturns, small businesses in the North of England are facing a tough start to 2025. The data suggests that local authorities, business leaders, and financial institutions must provide targeted support to avoid a prolonged downturn in SME growth.