ALMOST half of small firms are predicting a downturn in their performance and only one in 10 expect to hire more staff in the near future, according to a poll by the Federation of Small Businesses (FSB).

Its confidence measure, the Small Business Index (SBI), has plunged to an eight-year low and now stands at -21.6. It marks an unprecedented sixth straight negative reading and the lowest quarterly figure since the same period in 2011 when the UK was mid-way through a recession.

Profitability and export expectations have tumbled to a five-year low and close to half (46%) of small firms expect their performance to worsen over the coming three months. Fewer than a quarter (24%) expect their performance to improve.

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The last three months have seen margins squeezed within small businesses, the survey found. The proportion reporting a decrease in profits (42%) has surged to a five-year high, while the share reporting an increase (27%) is at a five-year low. 
Optimism among exporters is also in short supply. Fewer than one in four (23%) expect international sales to increase next quarter, while a third (32%) expect them to drop – the figures are at a five-year low and high respectively.

Pessimism is more pronounced in certain sectors, particularly retail where two thirds (66%) of small firms expect prospects to worsen next quarter. The share of small businesses citing consumer demand as a barrier to growth (36%) is at a three-year high.

Other frequently cited barriers to growth include labour costs, with one in four (24%) citing them as an impediment, up three percentage points compared to this time last year. Only 11% of small firms are planning to increase staff next quarter, another five-year low.

The domestic economy continues to be regarded as the number one barrier to expansion among small firms, flagged by 64% of those surveyed, up from 58% during the same period in 2018.

The poll of firms was made on the eve of the General Election and shows the business community is gripped by pessimism as uncertainty, concerns about the future direction of global trade and rising employment costs continue to burden businesses, according to the FSB. The organisation has highlighted the importance of the new government’s commitments concerning broadband, employment costs and business rates for small businesses.

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“The small business community has been stifled by uncertainty for more than three years,” said FSB director of external affairs and advocacy Craig Beaumont.

“This quarter, the added uncertainty that accompanies a General Election made it even harder for small firms to plan, hire and increase profits.
“They say that the night is darkest before the dawn, and small firms will be hoping that the old adage holds true. 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 fact that we’re seeing hiring intentions drop off so dramatically is a real concern. The need for this government to deliver on its promise to cut the jobs tax by increasing the Employment Allowance is a very urgent one. The small business community should be kept front and centre when ironing out our future relationships with the EU and other countries across the globe.”