The United Kingdom witnessed its slowest rate of new business creation in over a decade last year, signalling potential challenges for long-term economic growth and productivity. Official data from the Office for National Statistics (ONS), released Monday, showed that 316,000 businesses were started in 2023, a decline from 337,000 in 2022. This dropped the “business birth rate” — the percentage of new businesses relative to the total number of active businesses — to 11.0%, its lowest level since 2010.  

Business closures also decreased, with 309,000 shutting down in 2023 compared to 349,000 in 2022, reducing the “business death rate” to 10.8%, the lowest since 2020.  

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Economists warn that declining rates of both business creation and closure could negatively impact productivity and innovation. Established businesses often struggle to adopt new technologies or innovate at the same pace as startups.  

The ONS recently reported that UK output per hour worked in Q3 2024 was 1.8% lower than a year earlier, with just a 2.0% cumulative increase since the COVID-19 pandemic began. These figures, tied to productivity stagnation, may see revisions as new population data becomes available.  

However, there was a positive trend in high-growth businesses. The proportion of firms with at least 10 employees that expanded their workforce by 20% annually for three consecutive years rose to 4.7% in 2023, the highest in five years.  

The newly elected Labour government has pledged to make the UK a leader in per-capita economic growth among G7 countries. However achieving this goal may require addressing barriers to business growth and encouraging entrepreneurship beyond small-scale startups, which often have limited productivity impacts unless they scale up.  

While the hospitality sector remains a key area for new businesses, the broader startup ecosystem’s growth will be essential to strengthening the UK economy in the years ahead.