Business confidence is being restored after plummeting at the end of last year, but “dark clouds” are on the horizon as costs remain high, according to a new report.
Sentiment improved among small business owners and sole traders over the first three months of the year, a welcome step for the wider industry, the Federation of Small Businesses (FBS) found in its survey.
Nevertheless, the FSB’s confidence measure scored minus 2.8 points in the first quarter of the year, which means more firms felt pessimistic than optimistic.
But it was substantial improvement from the confidence slump in the final quarter of 2022, which had a negative reading of minus 45.8 points as retailers and hospitality firms were struck by higher costs and dampened consumer spending.
The FSB, which represents more than 150,000 business owners and self-employed workers, surveyed nearly 700 people in the latest iteration.
Meanwhile the tech and science sectors were leading the way with a positive confidence reading of 14.9 points.
Falling sales were an issue for many small firms over the first quarter.
Two in five small businesses said their revenues fell during the period, compared to a third who said sales had risen.
At the same time, around nine tenths of businesses said their costs were higher than in the same period last year, largely thanks to soaring utilities costs, as well as a record number of firms saying staff wages had shot up.
Higher costs coupled with waning consumer demand has put many small firms under pressure, but the FSB said they could soon rebound.
“However, there are still plenty of dark clouds on the horizon that could dampen small business recovery”, Martin McTague, FSB’s national chair, said.
“The prospect of further interest rate rises is causing significant disquiet, at the same time that costs remain at serious highs.”
He added: “In addition, the withdrawal of the Energy Bill Relief Scheme leaves a group of small firms exposed to high prices in fixed-rate contracts from last year unable to negotiate a new contract – due to a standoff between energy companies and Government.”
The Government’s Energy Bill Relief Scheme capped gas and electricity bills for businesses facing sky-high costs, but it came to an end in April.
The Government stressed the level of support was “time-limited and intended as a bridge to allow businesses to adapt”.
A new discount scheme was introduced this month, but the support is significantly reduced and a smaller number of businesses are eligible.