Small business confidence is rising at a rapid rate in a sign that UK’s recovery from recession is in full force. Small businesses faced several challenges in recent years with the Covid-19 pandemic, the Ukraine-Russia war, rising food prices and last year’s recession. Now, business owners are feeling optimistic looking ahead. Small business confidence has jumped over 20 points in The FSB’s Small Business Index (SBI) for Q1 of 2024, its biggest increase in recent years. This is the first time the small business confidence reading has risen above zero since 2018. The headline confidence reading now stands at +5.5 points in the first three months of 2024, up from -15.0 points in the final quarter of last year.
The most positive sector is manufacturing (+19.2 points), getting over a tough last quarter, with the least positive being accommodation and food services (-11.8 points). Industries showing significant increase in confidence include retail and wholesale (-29.8 points to +2.1 points), professional, technical and scientific firms (-4.7 points to +14.3 points). Accommodation and food services made the largest increase in their confidence reading, going from -73.0 points in Q4 to -11.8 points in Q1. The only major sector to see a decline in its confidence score between quarters was information and communication, which saw a fall from +24.4 points in Q4 to +7.1 points in Q1, down by 17.3 points.
Tina McKenzie, FSB’s Policy Chair, said: “Having small business confidence back in positive territory in the opening months of 2024 is a relief, after two years of it being underwater, and following on from a particularly difficult end to last year. The rebound in confidence levels in most sectors is a good indicator that the shallow recession recorded at the end of 2023 is firmly in the past, and small businesses are keen to look ahead to expansion and better trading conditions. Challenges do of course remain, especially for hospitality firms, whose outlook – though it made a strong recovery when compared with the end of last year – is still some way behind the other major sectors.”
However, revenues for majority of small businesses over the first quarter of this year declined slightly compared to last year. Over three in ten small businesses (32.0%) said their revenues increased in Q1 2024, while two in five (40.5%) reported a fall in their sales volumes. This show that many small firms are dealing with uncertain finances following the shallow recession experienced at the end of last year.
Despite this, small businesses are optimistic about the future. Nearly half (45.7%) of small businesses expect their revenues to be higher in Q2, while majority (52.4%) predict they would expand in the next 12 months. Inflation continued to take a toll on small businesses, with over four in five (83.7%) saying the cost of running their business was higher overall in Q1 2024 than in the same period in 2023. The most common factor for increased costs was utility bills. Over half (55.2%) of small firms pointed to utilities as the main driver of expenses. Next was labour costs (48.1%), followed by rent (26.4%). The situation has also improved slightly for small firms seeking finance. Around one in six (16.5%) describing the availability and affordability of new finance as good, up from one in seven (14.5%).
The survey comes ahead of Friday’s publication of GDP figures for March, which are expected to show that the UK grew 0.1 per cent on the month before. This would mean the UK grew 0.4 per cent in the first quarter, bringing last year’s shallow recession to an end. Economists are hopeful that the UK can put in a better showing than last year, when the economy barely expanded at all.
Tina McKenzie added: “While revenues over the first quarter suffered in comparison with revenues recorded during the previous three months, thanks to festive spending levels, the outlook for the next quarter is far sunnier, which is encouraging. Small firms may finally feel able to leave the survival mode they entered in order to cope with the successive blows of the pandemic, the cost of doing business crisis, and soaring energy bills.
“The domestic economy remains a big challenge as far as expansion plans are concerned, but if it performs better than expected, that could give small businesses the opportunity they have been waiting for to grow and flourish. The small business community took a big hit to its numbers in the wake of covid, with a loss of around half a million businesses. While there has been some recovery in the numbers since then, there’s still some way to go to make up lost ground.
“Politicians of all parties need to think about how they can give a real impetus to growth and investment, from start-ups to scale-ups. We’d also like to see banks and other financial institutions thinking about how they can treat small firms in a way that is fair and supportive, to help them achieve their ambitions – to everyone’s benefit.”
