Small businesses see reasons to be cheerful in 2017, but downside risks to the economy remain.
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Confidence appears to have returned to the UK’s small business sector, as figures from a respected lobby group show optimism hitting levels not seen since before June’s referendum on EU membership.
The Federation of Small Businesses (FSB) published figures showing that net confidence – the balance of businesses confident in the future against those who are not – moved into positive territory in the final three months of 2016.
Its Small Business Index registered a balance of 8.5, up from minus 2.9 in the previous quarter, which came in the immediate aftermath of the UK’s decision to leave the EU.
The figure is a fraction lower than the 8.6 registered before the referendum. The FSB said it meant small firms were upbeat about their prospects in 2017.
The group also reported job creation up for the second consecutive quarter, but it warned that investment intentions had cooled because key business costs continue to rise.
The dwindling value of the British pound, which slipped again this week on the back of fears of a “hard Brexit”, is lumping pressure on costs – and therefore profit margins.
FSB national chairman Mike Cherry said this was cause for the Bank of England to continue its policy of holding interest rates at a historical low of 0.25%.
“Despite the overall positive picture, our members still face many challenges as rising costs squeeze margins even further,” he said.
“The falling pound is driving up the price of imports and rising oil prices are being reflected in higher fuel costs. These inflationary pressures and price competition are hitting the bottom line hard with the majority of small firms seeing their profits continue to fall.”
According to the report, 28% of small businesses said exchange rates were the main cause of cost inflation compared to just 5.4% this time last year.
It also revealed a marked increase in businesses expecting to consolidate and stay the same size in 2017, as opposed to going for growth.