Small business confidence slumps amid rising rates and stubborn inflation
Confidence among small businesses slumped in the second quarter as the impact of rising rates and a stalling economy hit SMEs.
The Federation of Small Business’s (FSB) Small Business Index fell to minus 14.2 points in the second quarter, down 11.4 points in the first quarter of the year.
The fall in confidence reflects the downbeat economic conditions small businesses had to navigate over the quarter.
Inflation has remained persistently above the Bank of England’s target, forcing the Bank to hike rates faster and higher than many analysts had predicted. Traders now bet that the base rate will reach a peak of 5.75 per cent.
The economy more broadly contracted 0.1 per cent in May, mainly owing to an additional bank holiday from the king’s coronation.
Martin McTague, FSB’s national chair, commented: “Amid the rate rises and sticky inflation of the second quarter, and with economic growth underwhelming at best, it’s disappointing but perhaps not surprising that the momentum from the first three months of the year petered out somewhat”.
Some sectors were hit worse than others. Confidence among accommodation and food services fell 18.1 points while confidence among wholesale and retail firms fell 12.6 points.
On the other hand professional, scientific and technical activities was the only major sector to reach positive territory, hitting 7.8 points.
85 per cent of firms said costs had risen since the same period last year amid soaring inflation and rising rates. Nearly one third of firms who applied for finance were offered a rate of 11 per cent or more, a new record. Last year this was true for just 12 per cent of firms.
Although the figures were less rosy than the first quarter, it was still significantly more positive than the same period last year when confidence plummeted in the face of Russia’s invasion of Ukraine and the steep rise in inflation.
McTague highlighted that “small firms are survivors and there are positive signs in our findings.”
He pointed out that the most recent inflation figures, where inflation fell more than expected to 7.9 per cent, offered “a small sign of hope that inflation may finally be on its way to being tamed”.