SMEs in England: Navigating Growth and Challenges in 2025
- Safak Sahin
- Jun 8
- 4 min read
According to the 2025 Skills Horizon Barometer of HM UK Government, small and medium-sized enterprises (SMEs) in England are brimming with optimism, poised for growth despite a landscape filled with both opportunities and challenges. The SME Skills Horizon: 2025 report, based on insights from 1,500 SME decision-makers across England, paints a vivid picture of a resilient and adaptable sector. With strong revenue growth reported in 2024 and an anticipated 28% average increase in 2025, SMEs are strategically balancing ambitious growth targets with challenges like rising operational costs and staffing concerns. Here’s how they’re doing it and what’s on the horizon for the year ahead.
A Bright Outlook for 2025
SMEs are riding a wave of confidence, with 90% reporting business growth in 2024, averaging 27%—slightly surpassing last year’s predictions. Looking forward, sectors like green, media & entertainment, health, and creative industries are expected to lead the charge, with London and the West Midlands forecasting particularly strong growth at 31% and 30%, respectively. This optimism is tempered by challenges, but SMEs are proving their agility in navigating them.
Rising costs, such as energy prices and rent, remain the top concern, cited by 42% of SMEs—though this is a notable drop from 51-52% in previous years. Staffing issues, including retaining talent (27%) and recruiting employees with the right skills (26%), also persist, but concerns in these areas are declining compared to 2023 and 2024. This shift suggests a stabilizing recruitment market and a shrinking SME population, which may be reducing external opportunities and encouraging employee retention.
Investing in People: Upskilling and Recruitment Strategies
To fuel growth and address skills gaps—identified by 90% of SMEs, particularly at entry-level (32%) and specialist roles (29%)—SMEs are doubling down on workforce development. A striking 70% plan to invest in upskilling their existing staff in 2025, a consistent priority from 2024. This focus not only bridges skills gaps but also boosts employee retention by fostering development and fulfillment.
SMEs are also embracing technical education to meet their needs. Over half (54%) are interested in employee training and employment schemes like Higher Technical Qualifications (HTQs), Skills Bootcamps, and Apprenticeships. Entry-level schemes, such as Essential Skills or numeracy courses (53%), and work placements like T Level industry placements (52%) are also high on the agenda. As Dena Wyatt, Head of Apprenticeships at Specsavers, notes, “Our apprenticeship programme is a vital part of our recruitment strategy… we are exploring opportunities for T-Levels in our People Operations department for 2025.”
Despite a slight dip in engagement with these schemes compared to last year, SMEs are motivated by broader influences like government changes and the rise of AI. Nearly one in three (30%) say new government opportunities are encouraging them to explore innovative recruitment and training methods, while 33% see AI as a driver for developing new skills to seize business opportunities.
The Role of AI: Opportunity or Challenge?
Artificial Intelligence (AI) is a hot topic for SMEs, with 26% viewing it as an exciting opportunity compared to 18% who feel worried. Many are already integrating AI into their operations—20% use it occasionally, and 19% rely on it regularly. AI is also making inroads into recruitment, with 13% of SMEs using it to support hiring processes and 21% considering it. As Anna Green, Managing Director at Broadsword, puts it, “I see AI as an opportunity and think that everyone now needs to know how to use it.”
From streamlining back-office tasks to enhancing learner support, SMEs like Skills4Pharmacy see AI as a tool to boost efficiency without reducing staff. However, 17% remain hesitant, wary of over-relying on technology. The consensus? AI is most effective when blended with human input, and SMEs are keen to upskill their teams to harness its potential.
Beyond Skills: Building Diverse and Sustainable Futures
SMEs are not just focused on growth; they’re committed to making a positive societal impact. Nearly one in five (18%) prioritize building a diverse workforce, while 17% are focused on meeting green targets. This aligns with their recruitment priorities, where characteristics like a good work ethic (36%), teamwork (28%), and adaptability (23%) outweigh traditional credentials like industry experience (16%) or qualifications (12%). As Louisa Doyle, CEO of Mesma (a software company based in Newcastle), explains, “We currently have a good gender split in our workforce, but we’ve previously struggled to hire locally when it comes to staff from different ethnic backgrounds. We want to continue to push on in this area as we move into 2025.”
Technical Education: Shaping Talent and Driving Productivity
Technical education is a cornerstone of SME strategies, offering benefits like upskilling existing staff (44%), addressing skills gaps (41%), and shaping young talent (41%). It’s also seen as an economical way to recruit and train (40%). As Tom Beales, Director at Armultra, highlights, “Technical education routes help a diverse pool of people get into fabrication and engineering… guiding their learning to ensure it benefits us, clients they work for, and future business growth too.”
Apprenticeships, in particular, are valued for fostering enthusiasm and meaningful contributions. Philip Lodge, Retail Director at Specsavers, emphasizes, “The roles we give our apprentices aren’t ones nobody else wants to do… they are given meaningful tasks and have responsibilities that help them learn and grow.”
Challenges and Opportunities Ahead
While the outlook is positive, barriers remain. Some SMEs, particularly those led by older employers, are less open to technical education due to a lack of understanding about its benefits or concerns about costs. Skills gaps at entry-level and specialist roles continue to challenge businesses, but the shift toward valuing adaptability and personality fit over traditional qualifications signals a broader, more inclusive approach to hiring.
Conclusion: A Resilient and Forward-Looking Sector
England’s SMEs are entering 2025 with a blend of optimism and pragmatism. By investing in upskilling, embracing technical education, and leveraging innovations like AI, they are positioning themselves to thrive in a dynamic economic landscape. Challenges like rising costs and staffing concerns persist, but SMEs’ adaptability and commitment to workforce development set them apart. As they continue to prioritize diversity, sustainability, and strategic growth, SMEs are not just navigating the future—they’re shaping it.
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