Optimism among UK small firms has tumbled to its lowest level since the wake of the EU referendum amid unprecedented political and economic uncertainty, according to the latest FSB Small Business Index.
One in eight small businesses (13%) now expects to downsize, hand on or close their business. The figure is at its highest since the SBI launched in 2012.
The new research shows a majority (70%) of small firms reporting a rise in operating costs compared to the same period last year. Labour costs (42%), taxation (21%) and rent (19%) are all frequently mentioned as causes of this increase.
Small businesses most frequently identify the domestic economy (63%) and consumer demand (35%) as barriers to growth. Consumer-facing firms in the retail (-20%) and entertainment (-30%) industries report some of the lowest levels of confidence.
Mike Cherry, FSB National Chairman, said:
“Rising inflationary pressure and a weakening domestic economy are the twin drivers of plummeting confidence among small firms and consumers alike. With conference season and the Autumn Budget approaching, policymakers have an opportunity to restore optimism.
“A record proportion of business owners currently expect to downsize, sell or shut up shop, while rent and taxation are frequently mentioned as causes of increased costs. We need to see more support in this space – that includes ending enforcement of the ridiculous ‘staircase tax’.
“Small firms will be looking to the Chancellor to extend a lifeline at the Budget. In such a difficult trading environment, any new tax grabs or loss of reliefs for entrepreneurs would exacerbate existing challenges.”
The net balance of firms reporting higher revenues has hit a four-year low (2.6%), while the proportion applying for credit (12%) is at its lowest since 2014. Less than a third of small firms expect to increase investment in the next three months (27%), a five percentage point drop compared to Q2.
Mike Cherry added:
“The drop-off in applications for external finance is a real concern. It’s another area where Brexit could make or break small business prospects. A botched withdrawal from the European Investment Fund would create further barriers for small firms looking to access finance."