Small businesses are beginning the new year with increased pessimism as surging operating costs, weak domestic growth and flagging consumer demand hamper profits, according to the latest Federation of Small Businesses Small Business Index.
The SBI stands at minus 2.5 in Q4 2017, marking a fourth consecutive quarterly drop in the Index from a year-high of +20.0 in Q1 2017.
Almost a third (31 percent) of firms expect their performance to worsen over the next three months while just over a quarter (27 percent) expect an improvement.
This is only the second negative reading recorded in the last five years. The first (-2.9) was registered in the wake of the EU referendum.
A record one in seven (14 percent) small business owners are planning to downsize, close or sell their business over the coming three months.
Three quarters of firms (73 percent) report a rise in operating costs compared to this time last year.
The figure is at a five-year high, with the increase frequently attributed to labour (40 percent), utility (35 percent) and input (33 percent) costs.
Meanwhile profitability has fallen. The proportion of small businesses (41 percent) reporting a fall in profits is at its highest since 2013.
The domestic economy is mentioned most frequently by small firms as a barrier to achieving growth over the next 12 months.
More than half (55 percent) are concerned it will stifle their ambitions. Consumer demand (34 percent), access to appropriately skilled staff (34 percent) and regulation (20 percent) are also frequently flagged as barriers to expansion.
Mike Cherry, FSB National Chairman, said: “As we progress to stage II of Brexit talks, negotiations with the EU27 are set to continue dominating the political agenda.
"While the swift agreement of a transitional arrangement and an ambitious free trade agreement with the EU are absolutely critical, it’s spiralling costs, weak growth and flagging consumer demand at home that are front of mind for small firms day to day.
"It’s troubling to see a record number of entrepreneurs seeking an exit as these challenges prove too much for many."
The full report is available to download at http://www.fsb.org.uk/docs/default-source/fsb-org-uk/fsb-sbi-q4-2017.pdf?sfvrsn=0