After a year dogged by Brexit deadlock, political uncertainty and slow growth, optimism among small UK firms has slumped to an eight-year low.
The Federation of Small Businesses’s confidence gauge fell in October-December for the sixth quarter in a row. Managers at firms across the UK reported worries about the domestic economy and pessimism about opportunities overseas.
Nearly half of the 1,029 firms interviewed, including 66% of retailers, predicted that their performance would worsen in the first three months of 2020. Just a quarter expected conditions to improve next year.
Companies reported that earnings were under pressure, with 42% saying profits had fallen – the highest reading in five years. Fewer than a quarter of exporters predicted a pick-up in sales in the next three months, which is the gloomiest reading since 2014.
This pessimism has a knock-on impact on hiring. Just one in 10 small firms expect to increase their headcount in the next quarter – another five-year low.
At -21.6, the FSB’s Small Business Index (SBI) is now at its lowest since 2011 when the UK officially slumped into a double-dip recession (although growth was later revised up).
Craig Beaumont, the FSB’s director of external affairs and advocacy, said the uncertainty since the 2016 EU referendum had hurt small firms, making it harder to plan ahead. He was particularly concerned by the decline in hiring plans.
The FSB’s survey was conducted just before this month’s general election. Boris Johnson’s victory has now given firms some certainty over the future.
“They say that the night is darkest before the dawn, and small firms will be hoping that the old adage holds true,” said Beaumont, adding that Johnson needed to deliver on his promises.
“The incoming government has made some very positive commitments to the small business community, particularly where connectivity, employment costs, business rates and late payments are concerned. It now needs to deliver.”
The Chartered Management Institute has reported that many managers expect to receive a pay rise next year, but the number optimistic about the UK economy has risen only slightly, from 25% to 29%.