Small firms suffer fall in confidence

Small businesses ended 2010 less confident than they were at the beginning of the year, with hospitality firms in particular hit by the big freeze in December and rising VAT, research has revealed.

The latest Voice of Small Business Index, from the Federation of Small Businesses (FSB), shows that, in the three months to December, business confidence fell for the third successive quarter to a net score of -13.2.

The severe weather at the end of the year and the rise in VAT to 20% last month have both had an impact on small firms' confidence, especially those businesses operating in service and consumer-focused sectors such as hospitality, the FSB said.

The report also shows that small businesses expect employment growth to weaken in the coming months, with 12.4% expecting to decrease the number of staff they have - up from 10.4% in quarter three.

The impact of rising utility bills, fuel duty and VAT combined with the public sector cuts, means growth in 2011 is also likely to be sluggish at best, the FSB warned.

John Walker, national chairman of the FSB, said: "A number of pressures on small businesses are beginning to come to a head, such as the increase in VAT and fuel duty, placing more strain on cashflow. This combined with the severe weather at the end of 2010, has meant that small firms are not as confident about their prospects in 2011.

"With inflation above target and the labour market still weak, small firms cannot rely solely on the consumer for growth in 2011. So it is imperative that the Bank of England base rate is kept at 0.5% as once the impact of the VAT rise is excluded, inflation is relatively low."

FSB urges Government to act now or lose pubs forever >>

What does 2011 hold in store for the hospitality industry? >>

CBI sounds warning on consumer spending in 2011 >>

By Daniel Thomas

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