Confidence declines among small firms

SMALL firms ended 2010 feeling less confident than they were at the start of the year, according to the latest quarter report from the Federation of Small Businesses (FSB).

Business growth this year is likely to be “sluggish” according to the results of the FSB’s “Voice of Small Business” survey for the final quarter of last year.

Last month’s severe weather and the prospect of the increase in VAT at the start of this month had a negative impact on business confidence, particularly in the restaurant, retail and transport sectors, said the FSB.

As a result, the overall measure of confidence fell from minus 3.6 at the end of the third quarter of 2010 to minus 13.2 at the end of the year.

It represents a third consecutive decline in confidence since the FSB carried out the survey for the first time during the first quarter of 2010. The initial positive confidence reading of 16.2 fell to just 4.2 in the second quarter before turning negative in the third.

FSB National chairman John Walker yesterday called for the Bank of England to keep its nerve and resist pressure for an early increase in interest rates despite above-target inflation.

“A number of pressures on small businesses are beginning to come to a head, such as the increase in VAT and fuel duty, placing more strain on cash-flow,” he said.

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“This combined with the severe weather at the end of 2010 has meant that small firms are not as confident about their prospects in 2011.

“With inflation above target and the labour market still weak, small firms cannot rely solely on the consumer for growth in 2011. So it is imperative that the Bank of England base rate is kept at 0.5 per cent, as once the impact of the VAT rise is excluded, inflation is relatively low.”

Essex FSB chairman Iain Wicks added: “Overall, the figures show that the private sector recovery lost momentum in 2010, and as the constraints on businesses cash-flow increased from utility bills, fuel duty and VAT combined with the public sector cuts, growth in 2011 is also likely to be sluggish at best.

“The severe weather at the end of the year and the rise in VAT to 20% at the start of 2011 have both had an impact of small firms’ confidence, especially those businesses operating in service- and consumer-focused sectors such as restaurants, hospitality and retail sectors and those in the transport sector.”

The report also found that small businesses expect employment growth to weaken in the coming months, with 77.7% of small firms expecting to keep employment levels the same, but 12.4% expecting to decrease the number of staff they have – up from 10.4% in the third quarter.

The FSB is now urging the Government to bring forward plans for growth that include a competitive tax system to help boost employment and to keep to its manifesto pledge to introduce a fuel duty stabiliser.