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Small business confidence bounces back as economic forecasts lift

Confidence among small UK firms is rebounding against a backdrop of lower inflation, progress on Brexit talks and a positive Spring Statement, according to the latest Federation of Small Businesses (FSB) Small Business Index (SBI).

More than seven in ten firms expect their performance will either improve (32%) or remain the same (40%) over the next three months, while only one in four (27%) lack confidence about the coming quarter.

The quarterly SBI measure stands at +6 in Q1 2018, up from -2.5 in Q4 2017. The SBI fell in every quarter of 2017, dropping into negative territory for only the second time in five years during the final three months of the year.     

More than two thirds of firms (67%) new report that revenues are either stable or increasing. The proportion of firms planning to increase investment has hit a two-year high (33%) and half (50%) of small businesses expect to expand operations over the coming 12 months.

The SBI picture is mixed across industries, with firms in the retail (-19%) and accommodation & food services (-25%) sectors reporting negative readings. Manufacturers (+33) and professional services & scientific firms (+14) are among the most confident.  

International traders remain bullish, with the share of small exporters expecting global sales to increase over the coming three months at a one-year high (42%).

Mike Cherry, FSB National Chairman, said: “After a 2017 dogged by spiralling prices and political uncertainty, it’s good to see small business confidence back in the black. The resilience of the small firms and self-employed entrepreneurs that make up 99 per cent of UK businesses has lifted economic forecasts for the coming 12 months.  

“We’ve campaigned for an end to the £14 billion late payment crisis, reform of the regressive business rates system and an overhaul of VAT, so it was good to see the Chancellor address these challenges at the Autumn Budget and Spring Statement. Positive commitments from the Chancellor, along with agreement on a Brexit transition period and falling inflation, should make it easier for small business to plan, invest and grow in the months ahead.

”The picture is mixed though – consumer facing firms are still trying to keep their heads above water after a year of customer belt-tightening and business rates hikes. As a labour-intensive industry, small firms in the retail sector will disproportionately feel the impacts of a rise in the national living wage and auto-enrolment contributions next month.”

The latest SBI shows small firms are continuing to hire. The proportion reporting a steady or increased headcount is at its highest since summer 2016 (82%).

The domestic economy remains the biggest barrier to small business growth, with more than half (55%) of firms raising it as an issue. Consumer demand (33%), the regulatory burden (28%) and labour costs (21%) are the other most frequently flagged barriers to growth among small firms.

Mike Cherry continued: “Small businesses continue to help keep the nation’s employment levels close to record highs. We need to see more support around managing the costs associated with making that a reality. It’s time for the Government to deliver on the promise of a national insurance holiday for small firms that take on those furthest from the labour market.

“Securing the right Brexit deal is vital. While the final withdrawal agreement is ironed out, small firms will need support to adjust to regulatory changes over the coming weeks and months, not least the new GDPR rules taking effect from May.

“As Brexit negotiations progress, the Government needs to remember that it’s economic growth, consumer demand and labour costs here at home that are on the minds of small business owners day to day.”