The majority of small businesses (55%) are operating below capacity amid workplace absences, with many others citing rising costs as barriers to expansion, new research shows.
According to the Federation for Small Businesses (FSB), close to half of small UK firms do not expect to grow over the coming year amid growing business costs and inflationary pressures.
A record-high of small business owners said that operating costs, compared to this time last year, are contributing dramatically to reduced capacity and poor confidence.
The proportion of businesses citing fuel (60%), utilities (58%) and taxation (27%) as contributors to that increase are also at record highs, following an increase in fuel and energy costs, and the hiking of National Insurance rates.
Earlier in April, the Office for National Statistics (ONS) announced that inflation, as measured by the consumer price index, increased from 6.2% to 7% in March 2022.
A range of prices contributed to the rise in the 12-month inflation rate, with the largest upward contribution coming from motor fuels, followed by restaurants and hotels.
Small businesses also flagged inputs (48%) and labour (40%) as contributors to higher outgoings as they continue to face global supply chain disruption, labour shortages and rising wages.
The FSB also warned that the number of small firms that export (23%) is down from 27% - its lowest point since spring 2020 (22%) when the Government first announced covid-related restrictions.
One in eight (13%) small exporters have temporarily or permanently stopped sales to the EU, with a further 9% considering doing so.
According to the Institute of Directors, 45% of small traders are now exporting less to the EU while 8% have stopped exporting to the EU as a whole.
Emma Rowland, policy adviser at the Institute of Directors, said:
"Over the past year, UK businesses have lost EU clients and experienced a loss in revenue. EU firms have pulled out of the UK market due to increased trade frictions."
Despite some of the gloomy figures, business confidence for Q1 2022 is now higher compared to previous quarters, according to the FSB.
The FSB's small business index UK confidence reading stands at +15.3 for Q1 2022, meaning more business owners expect an improvement in their performance over the next quarter than expect the opposite.
This figure is down by 12 percentage points from the same period in 2021, but significantly higher than the confidence levels seen in Q4 2021 (-8.5).
Firms in the accommodation and food sectors (+16.5) are among the most confident, alongside those engaged in information and communication activities (+32.1).
In contrast, manufacturing (-9.1), and wholesale and retail (-8.2) firms report feeling negative about the future as operating costs and consumer belt-tightening hamper expansion plans.
Retail sales dropped by 1.4% in March 2022, according to a recent update from the ONS.
National chair of the FSB Martin McTague said:
"It's encouraging to see small business confidence back in positive territory, though the picture across sectors is distinctly mixed.
"As things stand, spiralling costs are eroding small business margins at a rate that many have never experienced before, whilst workplace absences are making it hard to operate at full capacity in a tight labour market.
"At the same time, new paperwork and supply chain disruption are weighing on our importers and exporters."
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