The Federation of Small Businesses (FSB)’s latest quarterly Small Business Index (SBI) concludes optimism is high despite a rise in operating costs.
The SBI, which reflects how firms expect to perform over the coming quarter, hit +23 across the region in Q4 2016, up from +3 in the preceding three months. This means that more businesses feel confident than feel the opposite. Small business confidence rose to +8.5 for the UK as a whole in Q4.
More than two thirds (69%) of small firms in the West Midlands expect profits to be stable or increase in Q1 2017. Amid a fall in the value of the pound, a third (34%) of exporters surveyed expect to increase overseas sales in the next quarter.
However, challenges still lie ahead for small businesses. The majority (63%) of respondents reported an increase in the cost of doing business compared to the same period last year, with labour costs mentioned most frequently as the main cause of this increase (26%).
While sterling depreciation has provided a boost for exporters, almost one in five firms (17%) sees it as a primary cause of increasing business costs alongside a related rise in raw material costs (24%).
Paul Miles Rogers, chair at the Federation of Small Businesses, said: “We are delighted to see confidence bounce back at the end of 2016 in the West Midlands, effectively wiping out the fall we saw over the course of the year in the run-up to the EU referendum and its immediate fallout.
“The current economic outlook seems brighter, and West Midlands small businesses are ambitious and want to make the most of it. Small exporters continue their strong rise, as UK goods and services become more competitive overseas and small businesses go out to find new markets and new customers.”
However, she also stressed how the challenges could impact the small business sector.
“Despite the overall positive picture, our members still face many challenges as rising costs squeeze margins even further. 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,” he said.
There has been a dramatic increase in the number of firms citing the exchange rate as the main cause of cost inflation.
Given these challenges, the share of small businesses aspiring to grow over the next 12 months has slipped, with a significant increase in those expecting to stay the same size – 37.5% compared with 27.4% in Q2 2015.
The FSB said that in order to increase economic growth and productivity, the Government had to look at how the business policy framework could help all small firms move into moderate growth – and not simply focus on start-ups and scale-ups alone.
“Our members tell us they are maximising their opportunities in this current positive economic climate. But with costs rising, they will need support for their confidence to translate into new economic growth and jobs,” said Mr Miles Rogers.
“As policy makers prepare for Brexit negotiations and look to small firms to contribute to the UK’s economic success, we would urge them to be ready to act if trading conditions deteriorate. We also call on the Chancellor to make March 8 a full-throated pro-business Budget, and believe an increase in the Employment Allowance, to help small firms boost job creation, would be a good place to start.”
Source: Duncan Tift - Business Desk