UK small business confidence falls to lowest level since pandemic

Confidence among small British business owners has fallen to its lowest level since the depths of the coronavirus pandemic as they are squeezed by rising costs and falling revenues, according to the Federation of Small Businesses.

Their outlook has become increasingly pessimistic over the past three months over concerns that the economy was headed for a recession.

The regular survey of members found that overall net confidence reached -35.9 in the three months to the end of September, down 11.2 points on to the previous quarter.

Almost half reported that revenues had fallen in the third quarter, compared to less than a third reporting an increase. More than 40 per cent expect revenues to continue to fall over the next quarter as pressures on the economy mount.

Martin McTague, FSB national chair warned that the U-turn on tax cuts by new chancellor Jeremy Hunt this week could hit sentiment further. “Raising taxes now will not generate growth and we risk seeing high taxes with low or no growth for the foreseeable future,” he said.

Rising costs continued to hit the majority of small firms, with nine in ten complaining of the increasing burden of energy and wage bills. More than two-thirds of employers have increased wages over the past year, averaging 4.5 per cent.

The lobby group said more small companies were increasingly reliant on debt to survive. The number of businesses applying for finance rose to 13 per cent in the past three months — the third successive quarterly increase — compared to 9 per cent at the start of the year.

Of those, nearly half used finance to help manage cash flow, up from 35 per cent the previous quarter, while only a quarter applied for finance to expand their business, down from 29 per cent the previous quarter.

The majority were offered interest rates between 5 and 10 per cent with borrowing costs continuing to climb given expectation that the Bank of England will increase the base rate next month.

The increasingly negative sentiment also filtered through to the usually-buoyant tech sector, where a rolling membership survey by the trade association TechUK revealed a sharp downturn in business confidence compared to the first quarter of this year.

Only 12 per cent of tech businesses surveyed believed the outlook would improve over the next 12 months, compared to more than 70 per cent in February and in October 2021, when the Covid-19 pandemic was still affecting the economy.

Neil Ross, the associate director of Policy at TechUK, which represents 900 tech firms, said that rising wage bills and energy costs were having the most immediate impact on sentiment. Looking ahead to 2023, the biggest constraint continued to be accessing sufficient talent, he added.

“The technology sector is resilient and has overcome major challenges such as Brexit and Covid-19, however, recent economic headwinds, rising energy and staff costs as well as longer-term concerns over access to talent are starting to bite,” he said.