Half of UK small and medium-sized businesses say they are likely to replace some staff roles with artificial intelligence or other technology-based solutions, research from Paragon Bank reveals.
The study, based on a survey of 1,000 SME leaders and decision makers, highlights the rapid pace at which AI is being adopted across the UK business landscape as firms seek to improve productivity and manage rising operating costs.
Overall, 50% of SMEs said they expect AI or other technology to replace certain roles within their organisations. Around a quarter (24%) said they have no plans to reduce headcount through AI adoption, while the remaining businesses remain uncertain about how the technology will affect staffing levels.
SECTOR VARIATIONS
Businesses operating in finance and insurance (62%), information and communication (68%) and manufacturing (53%) are among the most likely to see roles replaced by technology.
In contrast, sectors less inclined to reduce headcount include transportation and storage (55%), arts and entertainment (47%), health and social care (42%) and education (40%).
Despite the uncertainty over workforce impacts, the research suggests AI is already deeply embedded across the SME sector. Nearly nine in ten firms (89%) said they have adopted some form of AI technology within their business.
The most common applications include data analytics and decision-making (36%), operations and process automation (33%), customer engagement (32%), marketing (28%) and finance and risk management (27%).
OPERATIONAL BENEFITS
Among businesses already using AI, many report tangible operational benefits. Around 36% say it has increased productivity, 31% report improved data management and 30% say it has helped reduce operating costs. Other benefits cited include improved customer service (27%), faster innovation (27%) and more efficient procurement and inventory management (24%).
For many SMEs, the shift towards AI forms part of a broader response to ongoing economic pressures. Around 30% of firms said they are adopting new technologies or automation specifically to manage rising costs, while others are exploring new markets, alternative financing options or reshoring supply chains.
ENHANCING WORKFLOW
John Phillipou (main picture), managing director of SME lending at Paragon Bank and chair of the Finance & Leasing Association, says: “Working with more than 16,000 UK SMEs gives Paragon a clear view of the resilience and adaptability that define Britain’s small and medium sized businesses.
“That spirit is evident in how quickly AI is moving from concept to practical application across the sector.”
SMARTER DECISIONS
And he adds: “What stands out from this research is the pace at which SMEs are embracing AI. It’s no longer seen as a ‘future technology’, but a practical, productivity enhancing tool that is already helping firms cut costs, make smarter decisions and serve customers more effectively. Doing so amid ongoing cost and labour pressures is testament to their agility and responsiveness.
“As AI becomes more embedded in business activity, Paragon remains focused on providing the financial support businesses need to invest in the technologies that can drive the next phase of economic growth.”
The findings come as Paragon marks the 10-year anniversary of its SME lending division. Over that period the lender has quadrupled its loan book and delivered more than £3.6bn in funding to over 16,000 UK businesses, supporting investment, expansion and digital transformation across the sector.
