Small business employment down by 3,400 jobs in third quarter of 2024

At the end of the third quarter of 2024 (July to September), the UK’s small businesses with 1-9 employees employed 4,280,200 people. This is 3,400 fewer than at the end of the second quarter, a quarterly decline of 0.08%. Similarly, the latest jobs reports from the Office for National Statistics also show declining employment through July, August and September of 2024.

On an annual basis, the Small Business Index shows employment is down by 10,000 small business jobs, or 0.23%, compared to Q3-2023. The annual decline is part of a longer-term trend which began in Q3-2022, when small business employment hit a post-pandemic peak of 4,316,000. Since then, with growth in just two of the last nine quarters, employment levels have gradually returned to the pre-pandemic trend—offsetting the hiring surge triggered by the pandemic recovery. As the chart below shows, the number of jobs at small businesses is still higher than would be expected if the pandemic never happened (see “pre-pandemic trend).

By sector: employment down in 8 sectors, up in 5 sectors

In Q3-2024, 8 sectors had fewer jobs at small businesses compared to Q2-2024. These include the professional services sector (SIC M) and the wholesale and retail trade sector (SIC G). Small businesses in the other 5 sectors had more jobs at small businesses, including the information and communication sector (SIC J) and the administrative and support services sector (SIC N).

Small businesses in the professional services sector had the largest decline in employment in Q3-2024. These businesses now employ 1,400 fewer people than in Q2-2024, a quarterly decline of 0.27% (see chart below). In this sector, small business employment has declined in 3 of the past 4 quarters, adding up to an annual loss of 1,800 jobs.

There’s better news from small businesses in the information and communication sector (SIC J). They created 500 jobs in Q3-2024—more than any other sector (see table below). This is the first quarterly growth since Q2-2022, ending eight consecutive quarters of declining employment at small businesses. 

By nation and region: England has the fastest decline, accelerated by small business job losses in the North East                                                                                                                                  

All four UK nations had declining employment at small businesses in Q3-2024. England had the fastest rate of decline, at 0.76%, now employing 2,200 fewer people at small businesses than in Q2-2024. In comparison, small business employment declined more slowly in Scotland and Northern Ireland—falling by 0.16% and 0.17%, respectively. 

Within England, the South East accounted for the largest number of small business job losses in Q3-2024 (800 in total) due to its large population and a quarterly decline of 0.13%. The North East, however, had by far the fastest rate of decline, down by 0.47% (equivalent to 600 fewer jobs) compared to Q2-2024.  Two brighter spots emerge in the East of England and in Yorkshire & the Humber. Both regions had rising small business employment in Q3-2024. See table below for details.

Looking further back, England as a whole has now had declining employment at small businesses in 7 of the last 9 quarters. The best performing UK nation over that period is Northern Ireland, with declining employment in 5 of the last 9 quarters.

Expert Analysis by Professor Ufuk Akcigit

Ufuk Akcigit is the Arnold C. Harberger Professor of Economics at the University of Chicago. He leads the international team of economists working with Intuit QuickBooks on the Small Business Index.

“In a surprising turn of events, the UK's inflation rate fell to 1.7% in the year to September, marking the lowest level in over three and a half years. This drop means that inflation is now below the Bank of England's 2% target, opening the door for potential interest rate cuts in the coming months. While this news may be a positive sign for the broader economy, small businesses in the UK are still facing significant challenges.

“Currently, the UK’s interest rate stands at 5%, a level that was raised steadily as part of the Bank of England’s efforts to combat rising inflation. Though the Bank made a small rate cut in August, it chose to hold off on further reductions last month. These high borrowing costs are especially tough on small businesses, which are more sensitive to financing costs. 

“The latest data shows that small businesses in the UK experienced a 0.08% decline in employment in the third quarter of 2024, with an annual decline of 0.23%. While these percentages may seem small, they reflect a broader trend of pressure on small business owners who are grappling with tighter credit conditions and reduced consumer demand.

“Although the drop in inflation is a positive sign, indicating that the UK economy may be entering a less turbulent period, it also presents an opportunity for policymakers to provide additional relief for small businesses. With inflation now below the Bank of England’s long-term target, there is more room to reduce interest rates further, which would ease financing conditions and help stimulate growth.

“Small businesses play a vital role in the UK economy and their well-being is essential for a full economic recovery. Policymakers must take note of their struggles and act decisively to support them through this challenging period. With inflation coming down and interest rate cuts on the horizon, now is the time for the Bank of England to ensure that small businesses are not left behind after such a difficult post-pandemic period. Reducing interest rates further and improving access to financing are crucial steps in ensuring that small businesses can recover and contribute to the long-term health of the economy.”

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