Small business confidence rebounds but 'plenty of dark clouds on horizon'
and live on Freeview channel 276
Releasing its latest small business index report, the Federation of Small Businesses (FSB) said the headline confidence measure had bounced back significantly from the depths of lockdown-equivalent levels, to a reading of -2.8 points. That compares with the “deeply negative finding” of -45.8 points recorded in the closing quarter of 2022. However, it remains some way off the positive 15.3 point reading registered a year earlier, in the first quarter of 2022.
A lightly negative reading means that more small businesses still feel pessimistic than optimistic, but the scale of the improvement in sentiment is “significant”, the FSB noted, and is the third-largest quarter-on-quarter increase in the report’s history.
All the major industry sectors tracked in the index saw improvements in their confidence ratings, with wholesale and retail, accommodation and food, manufacturing, and information and communication all seeing major increases, even though these sectors still remain in negative territory. The professional, scientific and technical sector was the only major area tracked by FSB which ended up in positive territory, with a confidence reading of 14.9 points.
Falling sales were an issue for many small firms over the first quarter of 2023. About two in five small businesses said their revenues fell over the course of the first three months of this year (41 per cent), compared with one in three who said they had seen an increase in sales (34 per cent). The revenue outlook for the next quarter was viewed with more optimism, however, with about two in five small businesses (39 per cent) expecting to see their sales rise, against one in four (26 per cent) bracing for a drop.
On inflation, yet another series high was reached, with 92 per cent of small businesses saying their costs were higher than in the same period last year, with utilities the main culprit (cited by 63 per cent of businesses whose costs had changed), followed by labour costs (45 per cent), inputs (44 per cent), and fuel (40 per cent), although this was notably down from 54 per cent in the previous quarter. The economy was the most commonly-cited barrier to potential growth, noted by more than three in five small firms (61 per cent).
Martin McTague, FSB’s national chairman, said: “Our latest small business index data shows that small firms may be about to turn the corner and rebound after the pandemic and the energy crisis, with confidence recovering alongside improved optimism for Q2. However, there are still plenty of dark clouds on the horizon that could dampen small business recovery. The prospect of further interest rate rises is causing significant disquiet, at the same time that costs remain at serious highs. If rate hikes outpace or outlast the prices they are meant to control, this would be an extra pressure on small firms whose cash reserves remain at historic lows, and it’s no surprise that small firms’ views of available finance options are downbeat, in line with their abilities to invest and grow.”