The UK’s small business community headed into the general election gripped by pessimism as uncertainty, concerns about the future direction of global trade and rising employment costs continue to weigh on sentiment, according to FSB’s latest SBI.
The confidence measure stands at -21.6 in Q4. This marks an unprecedented sixth straight negative reading, and the lowest quarterly figure since the same period in 2011 when the UK was mid-way through a recession.
Close to half (46%) of small firms expect their performance to worsen over the coming three months. Fewer than a quarter (24%) expect their performance to improve.
Pessimism is particularly pronounced in certain sectors, not least retail where two thirds (66%) of small firms expect prospects to worsen next quarter. The share of small businesses citing consumer demand as a barrier to growth (36%) is at a three-year high.
Other frequently cited barriers to growth include labour costs: one in four (24%) cite them as an impediment to growth, up three percentage points compared to this time last year. Just one in ten (11%) small firms are planning to increase headcounts next quarter. The figure is at a five-year low.
The domestic economy continues to be regarded as the number one barrier to expansion among small firms, flagged by 64% of those surveyed, up from 58% during the same period in 2018.
The last three months have seen margins squeezed within small businesses. The proportion reporting a decrease in profits (42%) has surged to a five-year high, while the share reporting an increase (27%) is at a five-year low.
Optimism among exporters is in short supply. Fewer than one in four (23%) expect international sales to increase next quarter, while a third (32%) expect them to drop – the figures are at a five-year low and high respectively.
Research published by FSB last week highlights the importance of the new government’s commitments concerning broadband, employment costs and business rates to small businesses.
FSB Director of External Affairs and Advocacy Craig Beaumont said: “The small business community has been stifled by uncertainty for more than three years. This quarter, the added uncertainty that accompanies a general election made it even harder for small firms to plan, hire and increase profits.
“They say that the night is darkest before the dawn, and small firms will be hoping that the old adage holds true. The incoming government has made some very positive commitments to the small business community – particularly where connectivity, employment costs, business rates and late payments are concerned – it now needs to deliver.
“The fact that we’re seeing hiring intentions drop-off so dramatically is a real concern. The need for this government to deliver on its promise to cut the jobs tax by increasing the Employment Allowance is a very urgent one.“The small business community should be kept front and centre when ironing out our future relationships with the EU and other countries across the globe. We must secure a pro-business future trading arrangement with the EU, one that protects the three t’s: trade, talent and transition.”