Small business confidence at highest level in over a year

Despite spiralling business costs, record levels of international trade are thought to have been a major driver of confidence

Despite rising costs, the confidence of the UK’s small businesses has jumped to the highest level in over a year, according to the Federation of Small Businesses (FSB) Small Business Index (SBI).

The SBI stands at 20.0 for the first quarter of 2017, a huge increase on the -2.9 recorded after the Brexit vote and the highest figure since the final quarter of 2015.

A surge in international trade is thought to have been responsible, with 15.6% of small firms seeing increased export activity in Q1 2017 and a net balance of 30.5% expecting this to continue over the next quarter. This is the highest level of international sales since records began.

The confidence boom has come in the face of spiralling business costs: 64.5% of businesses were hit by rising operating costs in the previous quarter – the highest number since summer 2013 – with fuel (36.8%), labour (35.9%) and the exchange rate (26.9%) all cited as major contributing factors.

As a result of the increase to the National Living Wage, National Insurance contributions and auto-enrolment, businesses will pay an average of £2,600 in additional costs over the next year. Meanwhile, the Consumer Price Index (CPI) surpassed the Bank of England’s 2% target to reach 2.3% in March, with the rise in inflation set to impact everything from supplies to products and services and business rates.

However, businesses have benefitted from a more positive investment climate with a record 74.5% making successful applications for finance in Q1 and the proportion of firms describing the affordability of new credit as good rising to 29.1%.

11.3% of  businesses have plans to increase employment over the next quarter – a two-year high – but the share of firms with a higher headcount for the previous quarters dropped from 2.9% in the final quarter of 2016 to 2.1% in Q1.

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Scotland, where confidence levels were at -10 for Q1, has now seen negative confidence for five straight quarters – though it now stands at its highest level since Q2 2016. Confidence levels were highest in the East Midlands (39.3%), while London saw levels rise significantly from -1.7 in Q4 to 24.5 in Q1.

Gordon Millward, FSB regional chairman, commented: “It’s hugely encouraging to see our small businesses trading more overseas, driving an exports-led recovery. We know small firms that export have higher turnovers than those who rely on the domestic market, so it’s crucial that the Government maximises cross-border trade opportunities for small firms.

“Small firms are telling us loud and clear that they want to keep hiring. One fifth of our small businesses with staff employ non-UK EU citizens so guaranteeing the rights of EU workers based here should be a top priority for Brexit negotiators. On the domestic front, an increase in the Employment Allowance must be a key consideration for the Autumn Budget.”




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