Confidence amongst small firms in the East Midlands has fallen significantly, according to the latest survey by the Federation of Small Businesses (FSB).
The business group’s quarterly Small Business Index shows confidence has fallen to 0 per cent in the region for Q3, following a strong start to 2021, with both Q1 and Q2 confidence indexes at 50 per cent.
This fall in confidence is the first time a more negative sentiment has begun to creep back into the region, where close to a third of small businesses are now less confident about their prospects in the coming months (a sharp increase of 19% vs. Q2).
While most regions in the UK have seen a decline in confidence, particularly compared to the same time last year, positivity in the East Midlands has dropped below other UK counterparts, with London (38%) the most confident and the East of England most pessimistic (-1%). The UK average for Q3 is 16 per cent.
During the quarter, one in ten small firms (11%) had reduced their staffing numbers, and six per cent increased theirs. At the end of Q2, only four per cent had anticipated cutting staff levels.
However, wage growth in the East Midlands remains fairly stable as almost half of small firms in the region (48%) increased the average salary awarded across their business over the last 12 months, with 43 per cent increasing wages by two per cent or more. This represents only a slight fall from the amount of businesses increasing salaries in Q2, where 52% reported wage growth.
A drop in confidence also appears to be hampering growth intentions. The survey shows 38 per cent of small businesses in the East Midlands said that their growth aspirations in the next 12 months were to grow either rapidly (increase turnover/sales by over 20%) or moderately (up to 20%). This represents a significant fall from Q2 where 58% reported aspirations to grow their company.
The coming winter months and beyond look tough for businesses with many citing the domestic economy (59%), consumer demands (48%) and access to appropriately skilled staff (30%) as the greatest perceived barriers to growth over the next 12 months.
Nationally, Treasury’s plans to increase Class IV and Employer NICs as well as dividend taxation by 1.25 percentage points in the Spring will add inflationary pressures, causing firms to put the brakes on hiring and discourage investment, the research finds.
Clare Elsby, FSB’s East Midlands Policy Representative, said: “This quarter’s Small Business Index (SBI) is a stark reminder the road to recovery is a fragile one and that small businesses in the East Midlands are still facing significant challenges.
“A startling drop from steady confidence levels in Q1 and Q2, that were well above the national average, to levels far below it must be taken as a warning that regional investment and strong local leadership are of utmost importance.
“As an organisation we voiced our concerns that the removal of some of the support measures brought in to hold off the worst effects of the pandemic on businesses would be tough for many to navigate and potentially present a dangerous moment.
“Unfortunately, this seems to be the case and was made worse by rising Covid-19 cases, the pingdemic and consumer demand not bouncing back as quickly as predicted.
“Here at FSB we have made a commitment to work hard with our members and stakeholders to understand why our region, more than others, has faced such a dent in confidence. I would ask that all our valuable partners work with us to unravel the localised barriers that our small businesses face.”
