Half of UK small companies say rising costs will hit growth

Half of UK small companies say rising costs will hit growth

Almost half of small British companies have warned that the rising costs of doing business in the UK will stall growth this year, according to a survey carried out by the Federation of Small Businesses.

The group, which represents the interests of Britain’s almost 5.5mn small companies, said operating costs had risen for almost nine in 10 businesses compared with this time last year.

More than half blamed rising fuel and utility costs, while more than a quarter said higher taxes had started to bite following the increase in national insurance rates and the issuing of new business rates bills this month.

The majority of small business owners said they were also operating below capacity given global supply chain disruption, labour shortages and rising wages.

Small businesses are expected to be particularly hard hit by rising costs, with many operating on similar utility contracts to consumers given their size and lack of resources compared with larger rivals.

However, overall confidence remained in positive territory, at +15.3 for the first quarter, meaning more small business owners expected an improvement in their commercial performance over the coming quarter.

The combination of the pandemic and Brexit has also forced the number of small businesses that export to a two-year low, with the FSB saying that many were considering “calling time on international sales”. 

The survey will worry ministers given a wider downturn in business confidence across the UK. Officials hope for a business-led recovery from the economic problems caused by Covid-19 lockdowns, which forced many companies to close for months at a time.

Instead, the war in Ukraine, rising inflation and other costs have subdued business activity, with business leaders warning of another lost year for the UK.

Martin McTague, FSB national chair, said: “The small business community shrank in size to the tune of hundreds of thousands over the pandemic. With Covid numbers now falling, this needs to be the summer where we start to reverse that trend — policymakers should be doing all they can to facilitate and encourage start-ups and side hustles.”

The FSB surveyed 1,211 small business owners and sole traders during March and April 2022.

The overall optimism was boosted by recovering companies in the accommodation and food sectors, at +16.5, which are finally able to trade freely after travel and lockdown rules were relaxed. Information and communication companies, at +32.1, were the most confident, with many adapting fast to hybrid working and the growing need for digital services.

But the headline confidence figure was down 12 percentage points on the same period last year. Among the most negative were companies in manufacturing, wholesale and retail given surging operating costs, supply chain disruption, labour shortages and falling consumer confidence.

A fifth of small business owners said they would increase staff numbers in the coming months, but about two-thirds said they had already been forced to raise wages — a two-and-a-half-year high.

One in eight small exporters said they had temporarily or permanently stopped sales to the EU, and a further 9 per cent were considering doing so.

“As things stand, spiralling costs are eroding small business margins at a rate that many have never experienced before, whilst workplace absences are making it hard to operate at full capacity in a tight labour market,” said McTague.

“At the same time, new paperwork and supply chain disruption are weighing on our importers and exporters, and an endemic poor payment culture continues to destroy thousands every year.”

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