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Small business confidence hits seven-year low


Confidence among UK small firms has fallen to its lowest point since 2011 according the latest quarterly Small Business Index (SBI) from the Federation of Small Businesses (FSB).

The SBI stands at -9.9 in Q4 2018, reflecting a level of pessimism not seen since the aftermath of the financial crash. The second-lowest SBI reading since 2011 was recorded in the wake of the EU referendum (-2.9).

More than four in ten (43%) small businesses expect their performance to worsen over the coming three months, up from 30% in the summer. 

The proportion of small exporters expecting international sales to fall next quarter has soared to a four-year high, surpassing 30% for the first time in that period. The figure is up 14 percentage points compared to Q4 2017. 

With EU net migration to the UK at a six-year low, skills shortages are intensifying. The number of small firms citing lack of access to appropriately skilled staff as a barrier to growth has risen above a third (36%) – the highest share since the beginning of 2015.  

More than two thirds (67%) of small firms do not expect to increase capital investment in the coming three months. One in seven (15%) are planning to actively decrease investment. The figure is at its highest since Q3 2016 as businesses pause expansion plans amid unprecedented uncertainty.   

FSB National Chairman Mike Cherry said: “We’ve not seen political uncertainty weighing on small business confidence like this for many years. Planning ahead has now become impossible for a lot of firms as we simply don’t know what environment we’ll be faced with in little more than 100 days’ time.   

“A pro-business Brexit is one that ensures we can trade easily with the EU and have access to the skills we need. The latter is already proving a challenge and – if we crash out of the EU on 29 March without a deal – the former will go out the window. 

“Politicians of all stripes need to take account of the UK small business community’s mounting concern; the economic warning signs are now flashing red. MPs should talk to their local business community and be ready to act to protect the small firms which employ 16 million people.

“As things stand, Brexit is absorbing all of the UK’s political bandwidth. Once resolved, we must get back to issues on the domestic agenda: a late payment crisis that destroys 50,000 firms a year, an outdated business rates system and spiralling employment costs.”  

Small businesses are continuing to hire new personnel, with more than one in six (16%) taking on a member of staff in the past three months. Seven in ten (68%) have increased pay compared to last year, significantly more than in the same period in 2017 (58%). Close to one in three (29%) have increased wages by 4% or more. 

Half (50%) of small firms still aspire to grow their businesses over the next 12 months. The figure is largely unchanged since this time last year.  

Mike Cherry added: “These figures are testament to the resilience and grit of small business owners right across the UK. They’re still hiring, increasing wages and aspiring to grow.

“All is certainly not lost. There is a huge amount of drive and ambition among our small businesses. If they’re given certainty and the support they need, their full potential can be realised.”

Scottish small business confidence hits all-time low

Business optimism in Scotland is at the lowest ebb ever recorded by the Federation of Small Businesses’ (FSB) quarterly small business confidence index.

The Scottish figure crashed to -32.6 points from -13.2 points earlier in the year, the lowest since Scottish figures were collected. 

Andrew McRae, the Federation of Small Businesses’ (FSB) Scotland policy chair, said: “These gloomy figures show that the uncertainty and confusion associated with Brexit is having a huge impact on business optimism. It looks likely that confidence will only return when there’s a clear path beyond the March 29 deadline that safeguards smaller businesses’ interests. 

“While Scottish business confidence has long tracked below the UK average, this new low suggests firms north of the border are particularly distressed about the current state of affairs.”

A previous low of -28.9 points was recorded in Scotland in the last quarter of 2016. The second-lowest UK SBI (-2.9 points) reading since 2011 was also recorded in the wake of the EU referendum. 

Andrew McRae added: “Tumbling investment intentions should worry decision-makers as should skills shortages. That is not a foundation on which to build a sustainable economy.

“But our figures show that half of our businesses still want to grow despite the obvious challenges. We want to see those in charge make life easier for these operators. UK Ministers could start by designing an immigration system which works for Scottish smaller firms – especially in sectors like tourism.”

Last month, FSB wrote to the Scottish Government outlining moves they could take to boost the economy as they set out their spending plans for the next financial year. 

Andrew McRae said: “This week, the Finance Secretary must do what he can to shore up optimism. In our discussions with Ministers we’ve stressed the importance of rates reforms, underlined the need for skills development and urged the Scottish Government to do what it can to prepare its agencies and business community for post-Brexit trading conditions. 

“We’d urge Derek Mackay to gear his budget toward giving smaller operators a much needed lift.”