The first quarterly review of 2013 by the Federation of Small Business, which surveyed 2,686 of its members across the UK, shows that confidence among SMEs has increased dramatically since the last quarter of 2012, from a negative reading of -5.6 to +6.3 in the first quarter of this year, marking an improvement of 2.2 points from Q1 of last year.
However, the FSB’s quarterly Voice of Small Business Index (SBI) also showed that around 2% fewer businesses expect to invest in capital over the coming 12 months while 54% expect to grow rapidly or moderately in the coming year compared to 56% who had the same growth aspirations a year ago.
More businesses reported a continued decline in revenue this quarter with 39% recording a fall compared to last quarter and 30% showing a decline in gross profits.
Overall outlook for revenue for the coming quarter, although a fairly even split, is the strongest it has been since Q2 in 2011, with 36% expecting climbing revenues, 34% expecting no change and 30% anticipating continuing decline.
The SBI is used to record confidence among UK SMEs, measuring confidence on both a percentage and point scale where zero and higher represent a stable to positive outlook and negative figures reflect varying degrees of low confidence.
Sector breakdowns in the report revealed extremely varying results with manufacturing, although 7 points stronger than 12 months ago, reporting some of the weakest prospects over the coming quarter with an SBI reading of -8. This follows the latest ONS data that showed an annual manufacturing output decline of 2% in the final quarter of 2012.
The report cited weak demand for manufactured goods combined with cost pressure on bottom lines as likely to be constraining confidence among small UK manufacturers.
Meanwhile, SMEs in the creative services sector reported worse prospects than at the same point last year, whereas financial and business-related services demonstrated the greatest confidence.
FSB national chairman John Walker said: "Confidence among the manufacturing sector has improved from a year ago though still remains in negative territory as cost pressures and weak overall demand continue to make life hard."
Walker added that the report highlighted the ongoing issue of access to finance with results showing as many applications for loans were being declined as are being accepted.
He said: "The Bank of England’s Funding for Lending scheme (FLS) is still relatively new and is intended to tackle these issues but may need more time to take effect. However, our results this quarter do show that lending prices to small businesses are reducing. Almost a quarter of small businesses reported loan pricing of below 4%, up from a fifth 12 months ago."
He added that the figures could be the first signs that the FLS was starting to feed through.
Walker also used the report to urge the government to carry out a full review into enterprise policy including "all support mechanisms for adequacy and point of delivery".
He said: "Our members have had long standing concerns about the proliferation of schemes and their effectiveness. With the Business Bank being developed, and the ideas of Lord Heseltine’s recent review being developed, we see this is an opportune moment to carry out such a review and get enterprise policy onto a more focused, stable footing."
