SMEs in the UK are facing the highest cost pressures in Europe, with challenging economic conditions and increasing costs identified as two of the biggest concerns facing small businesses in the UK this year.

However, while UK SMEs are seemingly facing tougher cost pressures than their European counterparts, they also report higher levels of confidence and preparedness to meet challenges such as changing regulations.

This is according to a new report from Wolters Kluwer Tax & Accounting, which polled more than 1,000 SMEs from the UK, Germany, Spain, Italy, the Netherlands, Belgium, Denmark and Sweden.

56 per cent of UK SMEs said that challenging economic conditions and cost increases were among their top three concerns for 2026, significantly above the average of 40 per cent recorded across Europe.

However, 44 per cent of UK SMEs said that they felt fully prepared for regulatory changes, well ahead of the other European markets polled. UK SMEs also reported some of the highest levels of AI integration, with 65 per cent of UK respondents saying they use AI tools either daily or weekly.

The survey also found that UK SMEs make significant use of external expertise when making decisions related to operations and technology. 73 per cent of UK respondents ranked IT and technology service providers among their two top sources of advice on technology decisions, followed by accountants and business service providers (57 per cent).

Approximately three-quarters of UK SMEs, meanwhile, report outsourcing at least one business function to a third-party provider.

Elsewhere, 33 per cent of UK SMEs said that recruitment and the retention of skilled staff was their leading priority, with 26 per cent ranking talent issues as one of their business’ top three challenges.

Commenting on the findings, Wolters Kluwer Tax & Accounting Europe Executive Vice-President and Managing Director Bas Kniphorst said: “UK SMEs are under more economic pressure than any of their European peers, but they are responding differently.”

“UK SMEs stand out for prioritising regulatory readiness and leaning heavily on trusted advisors to navigate complexity. They are taking a selective, pragmatic approach to digital investment, focusing on tools that deliver fast efficiency and control to build resilience even as cost pressures remain high.”