Lower cost of living ‘is holding back’ UK small businesses

Britain’s small businesses are warning that falling costs of living are holding back economic growth, after two in five business bosses reported a drop in sales earlier in the year.

The Federation of Small Businesses said that while business confidence was rising among bosses ahead of the summer, skyrocketing costs and weak consumer demand continued to weigh on activity.

According to the latest snapshot of its Small Business Index, a record 92% of businesses said costs were higher in the first quarter compared to the same period last year. After a challenging start to the year, two in five small businesses expected their sales to pick up in the coming quarter.

The FSB said business confidence was restoring after taking a nosedive late last year, but warned “dark clouds” were still on the horizon.

Further Bank of England interest rate hikes could dampen the recovery of small businesses, while businesses are also under pressure from high energy, raw material and transport costs, and rising prices. staff salaries.

Economists widely expect the Bank to raise rates from the current level of 4.25% in response to inflation holding above 10% in March, more than five times the central bank’s target rate of 2%.

The FSB, which represents more than 150,000 entrepreneurs and self-employed workers, surveyed nearly 700 people. Its small business index reading rose to -2.8 in the first quarter, 43 points higher than in the last three months of 2022, but still about 18 points below the same period a year ago.

Martin McTague, FSB National Chairman, said: “Small businesses may be about to turn the corner and bounce back after the pandemic and energy crisis, with confidence picking up alongside increased optimism for the second quarter.

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“However, there are still many dark clouds on the horizon that could slow down the recovery of small businesses. The prospect of further rises in interest rates is causing great concern, at the same time that costs remain at very high levels.

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