Federation of Small Businesses (FSB) National Chair Martin McTague said: “Our economic recovery is stumbling when it’s barely had a chance to come out of the gate.
“Small business owners were feeling bullish at the start of this year, paving the way for a summer trading season that would have had it back on track.
“That rebound in activity is now at serious risk, with surging costs weighing heavily on our economic potential.
“We hear a lot from politicians about the cost of living crisis, but very little about the cost of doing business crisis which underlies it.
“Producer price inflation has been surging ahead of consumer price inflation for some time now, with businesses trying to absorb the difference.
“There comes a point, however, when they have no choice but to pass on more of their spiralling costs to customers.
“Consumer-facing firms, having been hardest-hit over lockdowns, are now caught between customers less willing to spend and the need to increase prices to cover surging outgoings, leading to a serious contraction in services output.
“The 15% fall in output for vehicle repair and MOT service centres is particularly worrying for that sector, as people travel less due to fuel costs.
“The economy has hardly grown over the past two years and we now have an indication that it’s shrinking again.
“Unless the Government acts to stem the cost of doing business crisis – extending direct support on energy costs to the small businesses caught between consumers and corporates, enabling firms to reclaim the cost of sick pay, and going much further in alleviating the pressure of regressive business rates – negative growth is set to persist.
“The combination of sustained high inflation and a recession would be devastating.
“Exporting small firms are typically among our most profitable and innovative – our economy needs more of them.
“With our trade deficit now at its widest since records began, we’re urging government to take forward our recommendation for a new SME Trade Support Fund which would empower more of the smallest businesses to trade overseas.
“At the same time, Government needs to get serious about putting small firms first in tackling this deeply concerning deficit, making dedicated small business chapters central to any new trade deals.”