‘Robust’ boost in small business confidence

Posted on 22 Jun 2015 by Callum Bentley

There has been a significant boost in confidence among the nation's small businesses according to the latest findings from the Federation of Small Business (FSB).

The latest Federation of Small Business (FSB) Small Business Index (SBI) reveals that small businesses are in a robust mood. Confidence in the sector has picked up markedly in the second quarter, with growth and investment intentions reaching new highs since the Index began in 2010. With few negatives in the overall picture, the latest survey readings on job creation, productivity and investment all bode well for small businesses sustaining the economy’s growth through 2015.

Findings in this latest research show that businesses view their prospects for the coming months very positively. Nearly two thirds (65.3%) of small businesses aspire to grow moderately or rapidly in the next three months – the highest figure ever seen in the SBI.

As a result of their desire to grow, productivity is increasing compared to the wider economy. This should be encouraging to policymakers, who have been grappling with the issue of low productivity growth for some time. The FSB Productivity Index shows that annual output per hour for workers rose by 1.4% year-on-year in Q4 2014 among small firms, compared with 0.3% in the economy as a whole (the latest period for which comparable data are available). The levels of spare capacity, an important factor in interest rate decisions, have dropped from a balance of 47.7% to 40.7%.

Currently employing just over 500 staff and plans to recruit an additional 50 employees
The balance of firms that have employed new staff in their firms has risen to 8.9%, a sharp increase from 2% reported 12 months ago.

In further good news, this quarter’s SBI shows the highest ever number of firms planning to invest in their business. Nearly one third of businesses (32%) plan to increase capital investment over the next 12 months. The balance of firms that have employed new staff in their firms has risen to 8.9%, a sharp increase from 2% reported 12 months ago.

While the overall mood of businesses shows confidence steadily returning to the economy, the survey results continue to suggest that the recovery is not taking grip equally across the country. The South East continues to dominate in business confidence followed by the West and east Midlands. Wales have seen a fall in confidence, with a fall in employment, and confidence figures are also lower in Scotland than the UK as a whole.

Businesses also remain concerned about the cost and availability of workers with the right skills with 35.4% saying this is a barrier to growth.

Key Findings:

  • The SBI, a measure of small business confidence in the UK shows confidence levels remaining steady at +37.9, up from +28.7 in the first quarter of 2015 although slightly down from the all-time high reading of +39.7 12 months ago.
  • Small businesses revenue and profits are also on the rise. A balance of 24.1 per cent of firms report increased revenues and a balance of 17.4 per cent report higher profits.
  • Small business wage increases are now in line with the economy overall with an average increase of 1.9% – the highest ever recorded in the SBI.
  • There has been a reported rise in small firms who are exporting. 28.6% report this quarter to be exporting, up from a consistent 25%.
  • The Index finds the chances of being approved for credit as business size increases. 63.3% of small businesses with over 50 employees were successful compared with 45.8% of sole traders applying for credit.

John Allan, national chairman, Federation of Small Businesses, said: “The results of the Q2 Small Business Index are very positive and show the major role that small businesses play in the growth of the UK’s economy. It is critical the new Government continues to develop the right environment to support businesses planning to grow, invest and take on new staff in the next 12 months. In the Budget and its upcoming Enterprise Bill, Ministers should prioritise supporting small business growth, simplify business taxes, raise skills and tackle poor payment practices.”

Producing the report, Rob Harbron, managing economist, Cebr said: “These results give much cause for confidence and show that the UK’s small business population will be instrumental in supporting economic growth in 2015. Confidence is stabilising and low inflation is boosting profit growth. Strong capital investment intentions and increased worker productivity are encouraging as they play a key role in a sustainable economic growth path.”