Britain has recorded its weakest quarter for business creation since records began, with new company formations falling sharply at the start of the year.
Office for National Statistics (ONS) data shows that 78,655 businesses were launched between January and March 2026, an eight per cent drop on the same period in 2025.
It is also the first time quarterly formations have slipped below 80,000 since records began in 2017.
Closures outpaced start‑ups, with around 83,200 businesses shutting down over the same period, resulting in a net loss of 4,500 firms across the UK.
Shadow Business Secretary Andrew Griffith criticised Labour's handling of the economy, saying: “This shows the unfolding disaster for enterprise with fewer businesses being started and wealth creators either leaving or concluding it's not worth the effort.”
He argued economic growth depends on a Government willing to back entrepreneurs, warning that current conditions are having the opposite effect.
The ONS figures coincide with analysis from the International Monetary Fund (IMF), which indicates the UK’s tax burden is rising faster than in other major developed economies.
The IMF expects Government revenues to reach 42.1 per cent of GDP by the early 2030s, the highest peacetime level on record, driven by increases to employer National Insurance contributions and changes to capital gains taxation.
UK business creation hits record low as 4,500 firms lost in Q1 2026, ONS data shows
|GETTY
Tina McKenzie, policy chair at the Federation of Small Businesses, said the data “underlines in stark terms” the need for stronger support for entrepreneurs.
She highlighted rising dividend taxes, business rates and charges on the sale of business assets as key pressures facing smaller firms.
The downturn in business creation has been felt across multiple sectors.
Finance and insurance saw new company formations fall by around 25 per cent compared with early 2025, while health and social care recorded similar declines.
LATEST DEVELOPMENTS:
Businesses have struggled with the increasing tax burden
|GETTY
Anna Leach, chief economist at the Institute of Directors, said geopolitical tensions were adding further uncertainty.
“The Middle East adds a new significant source of uncertainty into the business environment,” she said, noting that rising energy costs linked to the Iran conflict have compounded existing pressures.
She added that recent increases to the minimum wage, additional regulatory requirements and tighter financial conditions, including higher borrowing costs, have all contributed to the strain on employers.
Tax revenue is expected to reach a record of 38.3 per cent of GDP by 2030/31 | GB NEWSMarkets currently expect the Bank of England to raise interest rates from 3.75 per cent to 4.25 per cent over the next year.
A Labour spokesman said ministers recognise the challenges facing businesses, citing global pressures including disruption linked to the Middle East.
The spokesman said the Government remains focused on making the UK an attractive place to start and grow a business, pointing to the Small Business Plan, a £4billion expansion of finance access for SMEs, measures to tackle late payments and a £4.3billion package of business rates support.