UK Small Businesses Struggle as Cost of Living Holds Back Growth

UK Small Businesses Struggle as Cost of Living Holds Back Growth

Small businesses in the UK have expressed concerns that the cost of living squeeze is hampering economic growth. According to the Federation of Small Businesses (FSB), which represents over 150,000 business owners and self-employed workers, two in five company bosses reported a drop in sales at the start of the year. Despite a rising trend in business confidence, soaring costs and weak consumer demand continue to impede activity.

The latest snapshot from the FSB's small business index showed that a record 92% of companies said costs were higher in the first quarter compared with the same period last year. After a difficult start to the year, two in five small firms expected their sales to increase in the next quarter.

While business confidence was seen to be rising before the summer, the FSB has cautioned that there are still "dark clouds" on the horizon. The prospect of further interest rate increases from the Bank of England could impact the recovery of small businesses. Firms are already under pressure from the high costs of energy, raw materials, transport, and rising staff wage bills.

Economists widely expect the Bank of England to increase interest rates from the current level of 4.25% in response to inflation, which was above 10% in March, more than five times the central bank’s 2% target rate. This could potentially put small businesses under more pressure.

The FSB survey, which included nearly 700 respondents, showed that the reading on its small business index rose to -2.8 in the first quarter, up 43 points from the final three months of 2022 but still approximately 18 points below the same period last year.

Martin McTague, the FSB’s national chair, said that although small firms may be on the brink of recovery after the pandemic and energy crisis, there are still significant challenges. He also expressed concerns over the high costs and the potential of further interest rate hikes, which could hamper small business recovery.

The FSB's warning echoes those of other business groups, which have also highlighted the mounting pressures on small businesses in the UK. The British Chambers of Commerce has urged the government to provide more support, while the Confederation of British Industry has called for more investment in skills and infrastructure.

Article by The Guardian