The SR ended with the last passenger train came into Southwold on April 11, 1929. drawn by No.4 Wenhaston. Stock was tidied up and gathered in Halesworth yard, with the last day of operation being April 20. The railway remained, slowly decaying, until demolished for scrap during WW2.
The line was closed mainly due to decreasing income caused by the growing competition from road services. Although the finances were not disastrous, the writing was on the wall and it would have been difficult (if not impossible) to renew the ageing stock and equipment to enable it to continue. Although the board asked for financial help from the L&NER and Southwold Corporation, none was forthcoming. So they bit the bullet and went into receivership, the company finalling being wound up in May 1961. (Most of this is taken from Taylor & Tonks:
The Southwold Railway.) The Campbeltown & Machrihanish encountered similar problems and closed for the same reasons.
It is interesting to think of how it might have survived, as did other far more impecunious railways. Had the SR been included in the 1922 Grouping, perhaps the L&NER would have kept it going as a goods line, retaining the better locos and possibly introducing some internal combustion - also making it that railway's only NG line (or so I believe). After all, each of the other Big Four had at least one (GWR: VofRR, CR, W&LLR; LMS: L&MVR; SR: L&BR). After all, if the Southern (poorest of the Big Four) could keep the L&B going, why wouldn't the L&NER support the Southwold? It is certainly highly dubious that it could have survived independently after 1929 - the effects of the Wall St Crash in October reached the UK in 1930, with falling agricultural prices and 22% unemployed by 1932. And remember that the 'main line'-owned Manifold closed in 1934 and the L&B in 1935. If the SR hadn't closed in 1929, it certainly would have done a few years later.
Of course there were also the later proposals to rebuild to standard gauge with Sentinels and now the efforts of the modern restoration society (see here:
http://www.ukppg.co.uk/southwold.html for further details).
Whatever - that's enough history for today. Let's enjoy this glorious recreation of a very English railway and thank all the crew responsible.
Patrick