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Published on January 8th, 2018 | by The GC Team


Domestic fears weigh on small business confidence

Small businesses are beginning the new year with increased pessimism as surging operating costs, weak domestic growth and flagging consumer demand hamper profits, according to the Federation of Small Businesses (FSB).

The organisation’s Small Business Index (SBI) stood at -2.5 in Q4 2017, marking a fourth consecutive quarterly drop from a year-high of +20.0 in the first quarter of 2017.

This is just the second negative reading recorded in the last five years. The first (-2.9) was registered in the wake of the EU referendum.  

The FSB said 31% of firms expect their performance to worsen over the next three months while 27% expect an improvement.

A record 14% of small business owners are planning to downsize, close or sell their business over the coming three months.

73% of firms reported a rise in operating costs compared to this time last year. The figure is at a five-year high.  

Meanwhile, profitability has fallen. The proportion of small businesses (41%) reporting a fall in profits is at its highest since 2013.

The domestic economy is mentioned most frequently by small firms as a barrier to achieving growth over the next 12 months. More than half (55%) are concerned it will stifle their ambitions. Consumer demand (34%), access to appropriately skilled staff (34%) and regulation (20%) are also frequently flagged as barriers to expansion.   

Mike Cherry, FSB National Chairman, said: “As we progress to stage II of Brexit talks, negotiations with the EU27 are set to continue dominating the political agenda. While the swift agreement of a transitional arrangement and an ambitious free trade agreement with the EU are absolutely critical, it’s spiralling costs, weak growth and flagging consumer demand at home that are front of mind for small firms day-to-day. It’s troubling to see a record number of entrepreneurs seeking an exit as these challenges prove too much for many.”    

Cherry added that the late payment crisis means £18 billion is being withheld from small businesses across the UK, stifling investment for growth and causing thousands of firms to go bust every year.

“Equally,” he said, “small firms in dozens of local authority areas are still being denied the emergency business rates support they were promised last spring. The delay may well have spelled the end for some firms left reeling by April’s bruising revaluation.”   

The FSB pointed out that pessimism among small firms is particularly pronounced in the retail and construction industries. Across both sectors, businesses reported significantly lower levels of confidence compared to Q4 2016.  

Firms in these labour-intensive sectors will be hit hard by increases in auto-enrolment contributions from April, the organisation added.      

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