More than a fifth of UK SMEs (21 per cent) have named international trade tariff disputes as the biggest challenge facing their business, according to a new survey of 1,000 small and medium-sized enterprises by Paragon Bank.

SMEs in the study said that trade tariff tensions were pushing up costs, disrupting supply chains and shrinking profit margins, resulting in the issue being ranked as a greater challenge than labour shortages, inflation and domestic regulatory pressures.

While the UK has avoided the worst of Donald Trump’s controversial and uneven approach to trade tariffs, and the President recently scrapped his threat to impose tariffs on countries opposed to his Greenland plans, the issue has continued to affect UK businesses. Wider disputes have also fed into the matter, including the US-China trade war that has been rumbling since 2018.

Sectors most exposed to international trade were particularly badly affected, with more than a third of SMEs in transportation and storage (36 per cent) naming the issue as their primary challenge, along with one in four manufacturing businesses.

Approximately a quarter said profit margins had been directly impacted, while 23 per cent said they had been hit by reduced access to export markets or depressed demand among overseas customers. 20 per cent said they were experiencing longer production times and 17 per cent said sales had fallen.

This uncertainty is also affecting confidence and planning among SMEs, with around 22 per cent claiming it was complicating decision-making. According to Paragon Bank Deputy Managing Director of SME lending Phil Hughes, this has resulted in some SMEs delaying investment or scaling back their growth plans.

Hughes stated: “Trade tariff disputes have created significant challenges for SMEs, not only those importing or exporting, but also those further down the supply chain. Beyond the immediate impact on costs, tariff uncertainty has made planning and decision-making increasingly difficult, leaving many businesses in a state of limbo.”

He continued: “SMEs have shown real resilience, but with tariff uncertainty continuing there are understandable questions about how long this can be maintained. As a lender serving more than 16,000 UK SMEs, we are ready to support British businesses with tailored financial solutions to help them adapt and grow in an increasingly unpredictable global trading environment.”