News

September 21, 2012

New research indicates the UK economy is flat-lining

Challenging domestic conditions, limited access to finance and weak consumer demand continue to take their toll on the optimism of small firms according to the latest data from the Federation of Small Businesses (FSB).

The FSB's Voice of Small Business Index shows small firms' confidence levels fell 5.8 points to -4.5 in the third quarter of 2012 — the fourth lowest score since the start of 2010. However, this is 20 points higher than in Q4 2011 when the economy fell sharply back into recession, suggesting the economy is flat-lining rather than going into reverse.

Despite the gloom, half of the 2,600 small firms polled said they wanted to grow in the coming 12 months.

Access to finance remains a key stumbling block. In the third quarter, 21.6% of respondents had applied for finance — down one percentage point on Q2. However, the number of refusals has increased and almost two thirds of FSB members think the availability of credit is poor.

Other key findings from the latest Voice of Small Business Index:

• Across the UK, 10 in 12 regions saw a decline in confidence — only London and the east Midlands saw an increase;
• Fifteen of the 18 sectors surveyed were more confident than in Q2. Business services sector and small manufacturers continue to perform well, but for those that rely on discretionary spending, confidence fell resulting in the overall negative reading;
• Construction businesses saw a fall in confidence;
• For a tenth consecutive quarter, firms reported a fall in revenues;
• Employment intentions remain stable with three quarters saying they didn't plan to make any changes but a net balance of 3.7 per cent said they would reduce staff levels;
• Half of respondents are still struggling with the price of fuel, but this has fallen, suggesting that postponing the 3p rise until January was the right thing.

John Walker, FSB national chairman, said: "It isn't surprising that confidence fell back into negative territory as the recession entered its third quarter as growth flat-lines. The message is clear though — businesses want to grow and invest but they need a helping hand to do so. It is frustrating that bank finance is still difficult to get. No matter what is said about demand, more than 40% of applicants have been refused in each quarter this year. This has to change if growth aspirations are to be met."