Midlands SMEs outpace UK on profitability, Sage data shows

Small businesses in the Midlands are turning in a stronger profitability run than the rest of the UK, according to new Sage data. The company’s SME Performance Pulse, based on anonymised accounting records from nearly 150,000 SMEs, shows East Midlands firms increasing profits by 18.8% in the year to Q2 2026. That is more than three times the national average of 5.3%.

The West Midlands is also ahead of the pack, with profit growth of 12.8%. Sage’s chief commercial officer, Derk Bleeker, said the East Midlands is where the UK’s small business growth story is being written right now, pointing to regional businesses growing faster than peers elsewhere in the country while facing the same national pressures. He argued that local strengths and AI are part of the explanation.

The national picture is more mixed. Average small business profits across the UK rose 5.3% in the year to Q2 2026, up slightly from 5.1% in Q1. That came alongside wider UK economic growth of 1.2% year on year, according to the Office for National Statistics, compared with 0.6% in Q1. But revenue growth has started to ease. Real revenues were up 1.6% annually in Q2, down from 3.2% in the previous quarter, which Sage says suggests demand for small business goods and services is softening.

At city level, Derby stands out. It posted the fastest revenue growth of any UK city over the past two years, up 39.1%, and has topped the national rankings for four quarters in a row. Lincoln was third, giving the East Midlands two of the country’s three fastest-growing urban areas. Government-backed work such as the £10 million Team Derby programme and private investment from firms including Rolls-Royce are helping support the area’s industrial base and supply chains.

Sector trends also favour the region’s mix. Real estate had the strongest revenue growth nationally in Q2 at 12.4%, with agriculture next at 8.4%. In the East Midlands, construction, professional services and real estate are all growing faster than their UK counterparts, while manufacturing still anchors the economy with around £17 billion a year and more than 300,000 jobs. AI adoption is rising too: Enterprise Nation says only one in five of the UK’s 5.7 million small businesses use AI regularly, but 83% of AI adopters in the East Midlands increased their use over the past year.