Small business confidence has recovered strongly between Q4 2022 and Q1 2023, according to the Federation of Small Businesses, but it is still in negative territory.
The UK Small Business Index (SBI) from the Federation of Small Businesses (FSB) has risen to -2.8 in Q1 2023, up 43 points from Q4 2022; however, it is still in negative territory and 18.1 points lower than in the same quarter last year.
Headline data from the latest Small Business Index shows that:
- Two in five small firms (41%) saw revenues fall over Q1 2023;
- Only one in three (34%) saw an increase in that time;
- Two in five small firms (39%) expect their sales to increase in the next quarter.
All the major industry sectors tracked in the Small Business Index saw improvements in their confidence ratings, with wholesale and retail, accommodation and food, manufacturing, and information and communication all seeing major increases. The professional, scientific and technical sector was the only major sector tracked by FSB which ended up in positive territory, with a confidence reading of 14.9 points.
"A lightly negative reading means that more small businesses still feel pessimistic than optimistic, but the scale of the improvement in sentiment is significant, and is the third-largest quarter-on-quarter increase in the SBI's history." Federation of Small Businesses.
Key findings from the FSB report
- Growth aspirations: 46% of small businesses anticipate they will grow in the next quarter, up marginally from 45% in the previous quarter, while the proportion saying they expected to downsize, sell, or close the business fell from 16% to 13% over the same period.
- Exports: 40% of small exporters say the value of their exports fell over the first quarter, while only 22% said they had increased.
- Inflation: 92% of small businesses say their costs were higher than in the same period last year, with utilities the main culprit, followed by labour costs, inputs and fuel.
The economy was the most commonly-cited barrier to potential growth, noted by 61% of small firms, followed by utility costs (33%), and consumer demand (30%). A new Small Business Index record of 71% was reached among small firms saying that salary costs were higher than the same period a year ago.
Small firms have shown "grit and determination"
Martin McTague, FSB national chair, said: "Our latest Small Business Index data shows that small firms may be about to turn the corner and rebound after the pandemic and the energy crisis, with confidence recovering alongside improved optimism for Q2.
"However, there are still plenty of dark clouds on the horizon that could dampen small business recovery. The prospect of further interest rate rises is causing significant disquiet, at the same time that costs remain at serious highs.
"While our research may provide a glimmer of hope that things are looking up, it's important to remember that small businesses have shown incredible grit and determination in the face of adversity, and these figures are a real testament to that."
Written by Rachel Miller.