UK small business confidence has sharply declined, recent FSB survey shows.
- Rising wages are identified as the primary factor affecting business confidence.
- FSB’s Small Business Index shows a drop to -10.8, indicating financial stress.
- Sectors like construction and wholesale are experiencing significant decreases in optimism.
- Calls for government action to mitigate rising labour costs and support business growth.
In a concerning trend, the Federation of Small Businesses (FSB) reports a significant drop in confidence among UK small businesses. The Small Business Index, which surveys over 1,000 firms, highlights a fall to a score of -10.8 in confidence for the second quarter of the year. This marks a noticeable drop of 16.3 points from the previous quarter, indicating escalating financial pressures primarily due to rising wage costs, which are now challenging these enterprises.
The survey identified soaring employment costs as the predominant challenge, with additional burdens from weaker consumer demand and mounting tax pressures. Tina McKenzie from FSB expressed concerns that the current trajectory of rising labour costs could hinder economic growth and potentially lead to job reductions among small businesses. Her apprehensions extend to the forthcoming government changes in employment law, which might further elevate hiring-associated risks and costs.
McKenzie also highlighted the potential aggravation from Labour’s proposed workers’ rights overhaul, which could increase the financial strain on employers. She urged the government to align the employment allowance with the rising living wage as a strategic move to relieve some pressure off small firms and tackle the persisting economic inactivity.
Particularly noteworthy is the sector-specific insight provided by the FSB report. The construction sector appears most affected, with a confidence score plunging to -20.7, signalling severe pessimism. This is followed closely by declines in the wholesale and retail sector, down to -19.5, reflecting a sharp reversal from its previously positive outlook. Other sectors such as accommodation and food services, manufacturing, and information and communication have also reported reduced confidence levels.
To address these challenges, McKenzie advocates for targeted support and reforms, especially stressing the necessity for changes in consumer infrastructure levies to assist small construction firms in accessing the required financing, potentially stabilising their operations.
The FSB’s report underscores a crucial need for government intervention to support UK small businesses amidst rising employment costs.
