Optimism among the UK’s smaller companies has fallen to its lowest level since immediately after the referendum on EU membership in June last year, according to the Federation of Small Businesses.
Its index of small business confidence fell from +15 in the second quarter of 2017 to +1 in the third. Immediately after last summer’s Brexit vote it stood at minus 3.
A record number of entrepreneurs — one in eight — expect to downsize, close or sell their company, said the FSB. This was the highest figure since the organisation launched the index in 2012.
Mike Cherry, FSB national chairman, said that rising inflationary pressure and a weakening domestic economy were the twin drivers of plummeting confidence among small firms and consumers alike.
“With [party] conference season and the autumn Budget approaching, policymakers have an opportunity to restore optimism,” he said.
More than two-thirds — or 70 per cent — of small companies reported a rise in operating costs compared to the same time last year, said the FSB. The biggest contributor to these were labour costs, taxation and rent.
Companies most frequently identified the state of the domestic economy and weak consumer demand as barriers to growth, with consumer-facing businesses in the retail and entertainment sectors reporting some of the lowest levels of confidence.
The net balance of businesses reporting higher revenues hit a four-year low of 2.6 per cent, and the proportion applying for credit — 12 per cent — is at its lowest since 2014. Less than a third of small companies expected to increase investment in the next three months, a 5 percentage point drop compared with the second quarter.
Mr Cherry said Philip Hammond, the chancellor, should avoid any new “tax grabs” or loss of reliefs for entrepreneurs in the Budget.
He also said there should be an end to enforcement of the “staircase tax”, which taxes businesses occupying separate floors of a single building and which Mr Cherry described as “ridiculous”.
Despite the increased gloom among small businesses about domestic prospects, exporters remained optimistic.
The proportion reporting an increase in overseas sales was at a three-year high of 39 per cent, and a similar proportion, 35 per cent, expected export growth to continue over the coming quarter.