Small firms end 2023 with slip in confidence, prompting need for 'strong measures' in Spring Budget, says Federation of Small Businesses

Sector branded the “economy’s canary in the coalmine” ends 2023 with “disheartening” slip in confidence.

The final quarter of 2023 saw small business confidence lose the ground made up earlier in the year, in what “should be a wake-up call” for the UK Government and decision-makers more broadly, including a case for the Bank of England to slash interest rates as soon as possible, according to a new report from the Federation of Small Businesses (FSB).

The latest UK small business index from the trade body, which represents a sector it calls “ever the economy’s canary in the coalmine”, fell back to -15 points in the final three months of last year, down from -8 in the third quarter, and on a similar level to the -14.2 registered for April to June. Furthermore, two in five such organisations said they saw revenues fall in Q4, while only one in three saw an increase,

The index, in partnership with Google, also showed a large divergence in confidence levels across major sectors, with most remaining “some way below zero”, according to the report. Hospitality “remained the gloomiest sector by far”, with the confidence reading for accommodation and food services businesses -73.0 points, down from -31.1. points in Q3, for example.

The index, in partnership with Google, also showed a large divergence in confidence levels across major sectors, with most remaining 'some way below zero' (file image). Picture: Getty Images/iStockphoto.

Reported revenues were more or less flat on the previous quarter in October to December, with four in ten respondents again noting a drop. “It is the seventh consecutive quarter to show a negative net balance of small firms reporting revenue growth, and underlines the need for the upcoming Spring Budget to build on the pro-grow measures in the Autumn Statement,” the FSB said.

Looking forward, almost exactly the same proportion of small firms expect their revenues to grow over the first quarter of this year as expect them to decrease at 32 per cent – a deterioration of about 3 percentage points from the Q3 survey. Additionally, the share of small businesses proportion predicting that they would contract in the coming year crept upward to 15 per cent from 12.7 per cent. In terms of the biggest perceived barrier to growth, the domestic economy came top, cited by just under 62 per cent of companies, down from 63.5 per cent in Q3.

Tina McKenzie, FSB’s policy chair, said: “Losing the ground made up in the third quarter in terms of the overall confidence level among small firms should be a wake-up call to the [UK] Government and to decision-makers. Turning around the mood among many small businesses is going to require strong measures to promote growth in the Spring Budget.

“High interest rates have reduced small firms’ margins and held back their ability to invest in their business, so we would look to the Bank of England to cut the base rate as soon as possible, to minimise the economic damage caused. Small firms are ever the economy’s canary in the coalmine, more exposed to shifts in consumer behaviour and changing circumstances due to their lower levels of reserves to fall back on. With many fighting hard to keep going amid challenging circumstances, their ingenuity, grit, and tenacity are being tested to the limit.”

The report follows the Scottish Chambers of Commerce calling for the next general election to prompt “real action” to stimulate business growth.