Small firms are struggling to grow fast enough to meet consumer demand, with a quarter worried that they do not have the strength to survive financial shocks, according to new research.

The survey by HSBC revealed the prospects for small and medium enterprises (SMEs) are being hampered by business and borrowing costs.

The findings come after the Prime Minister last week gave a renewed pledge to improve living standards across the country, alongside a long-term aim to make the UK the fastest-growing G7 economy.

But the banking giant’s research found more than two-thirds of business owners said they were not able to grow their business to meet customer demand for goods and services in 2024.

The same proportion, 69%, anticipate they will face the same challenge in 2025.

More than half the 1,000 business owners, all with less than 50 staff, that took part in the survey said a challenge they faced this year was the rising costs of running a business, while 22% said they struggled with higher interest rates.

Costs are set to jump for many firms next year following a planned increase to the rate of employer national insurance, and the national minimum wage, from April.

Furthermore, nearly a quarter of SMEs said they do not believe they have the resilience required to survive financial shocks – with 53% having less than £50,000 in cash reserves.

About 28% said they had no cash reserves at all.

Tom Wood, HSBC UK’s head of business banking, said it was “positive news that demand for SME goods and services remains strong, and trading conditions will become more favourable as inflationary pressures ease”.

But he said firms need to “build resilience whilst increasing profits” if they want to grow to meet the level of demand.

Martin McTague, national chairman of the Federation of Small Businesses (FSB), which has partnered with HSBC to provide SME support, said it was “impossible to overstate” the impact small firms have on the UK economy.

“At the moment, it’s far from smooth sailing for many small businesses who are facing rising costs, difficulties accessing finance and cashflow issues caused by late payments, among other pressures, presenting obstacles to their expansion plans.”