Fewer UK small and medium-sized enterprises now view the cost of living as their greatest risk, although it remains the top concern in 2025, according to new research from Allianz UK.

The insurer’s latest SME Risk Index shows that 54% of firms named the cost of living among their top threats this year, down from 61% in 2024. Despite the drop, it remains the most cited risk, ahead of regulatory change and trade tariffs.

Nearly half of respondents said they had been affected by changes in consumer demand over the past 12 months. Regional differences were marked: in London, only 36% of SMEs now identify the cost of living as a major risk, down sharply from 64% in 2024. But in Yorkshire and Humber and the South West, concerns have grown, with 76% and 72% respectively naming it as their top threat.

The top five SME risks for 2025 were:

1. Cost of living: 54%
2. Changes to legislation and regulation: 29%
3. Trade tariffs: 26%
4. Cyber incidents: 24%
5. Fiscal or tax constraints: 20%

Allianz said smaller firms were more likely than large corporates to feel the effects of regulatory change, with 38% of SME respondents reporting impacts in the last year.

Commenting on the findings, Alex Ktenidis, director of digital and ALP, Allianz UK, said: “The name ‘cost of living crisis’ can sometimes mean the impact on businesses is overlooked. But when consumers have less disposable income and spending slows, that can hit SMEs hard. I’m cautiously optimistic to see that the squeeze of the cost of living crisis is easing for some business owners."

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