Recession, what recession? Firms shrug off UK economy fears to focus on growth

Britain’s small businesses are turning their attention away from worrying about whether the country will slip into a recession to focus on growth, a new survey out today shows.

Confidence among the country’s small firms – which drive output – climbed sharply from its depths at the end of last year, according to the Federation of Small Businesses (FSB).

Although still in negative territory at minus 2.8 points, the FSB’s confidence index leapt from minus 45.8 points in the final three months of 2022.

The findings are the latest set of data to indicate the UK will probably dodge a recession this year. 

Consumer confidence has been rising steadily, while purchasing managers’ indexes have crept into the positive 50 point space, except for the manufacturing sector.

Bank of England officials have canned their recession forecasts, as have those at the Office for Budget Responsibility.

Martin McTague, national chair at the FSB, said the “data shows that small firms may be about to turn the corner and rebound after the pandemic and the energy crisis, with confidence recovering alongside improved optimism for Q2.”

Nearly two in five small businesses expect their income to jump over the current quarter, higher than the one in four who reckon they’ll suffer a revenue slump. Last quarter, more firms clocked revenue declines.

Better sales expectations have boosted growth projections. The FSB said nearly half of the 681 companies they surveyed reckon they will grow over the current quarter.

But firms are still being squeezed by record increases in the cost of producing goods and services, which could keep economic activity pegged back.

Confidence (is) recovering alongside improved optimism for Q2, but there are still plenty of dark clouds on the horizon that could dampen small business recovery.

Martin McTague

Some 71 per cent small companies have a bigger wage bill, the highest share the FSB has ever recorded.

Over nine in ten firms told the lobby group that their overall costs are higher compared to a year ago, inflated by higher energy prices.

“There are still plenty of dark clouds on the horizon that could dampen small business recovery,” McTague added.

“The prospect of further interest rate rises is causing significant disquiet, at the same time that costs remain at serious highs,” he said.

Bank of England Governor Andrew Bailey and co are poised to lift rates 25 basis points on 11 May to 4.5 per cent, which would be the twelfth straight increase.

Separate research from consultancy BDO found worker shortages are hobbling business growth. 

“More than two fifths (44 per cent) of these businesses say their number one workforce issue is the cost of hiring,” the firm said.

FSB’s index also found exports are stagnating.