Small confidence has fallen to its lowest level since the first quarter of 2013, according to a new survey by the Federation of Small Businesses (FSB).
On the morning of its National Conference, the FSB said the fall is most noticeable in London and the East of England, but all regions of the UK have seen declines. Scotland and Northern Ireland are the least confident areas overall, with both now in negative territory.
The results underline the importance of positive measures to support small firms announced in the Budget and the need to maintain support in the face of tough economic headwinds, the organisation suggested.
The FSB suggests the cooling in confidence is partly a result of uncertainty about the strength of the UK and global economy. However, FSB also found a strong indication that a raft of new challenges facing small businesses - included the National Living Wage (NLW), pensions auto-enrolment and plans to introduce mandatory quarterly digital tax reporting – were contributing to the decline in business sentiment.
Sandra Dexter, FSB Vice-Chairman, said: "Small business confidence has clearly faltered, which is why the welcome small business focus in the Budget is so important. We need a renewed push for growth and productivity - with policy makers delivering a sustained package of support for ambitious small firms.
"The Budget included a number of important measures to help smaller businesses, particularly changes to business rates which will see many small businesses taken out of paying rate altogether. Delivering on tax simplification measures will be vital - as will be pressing ahead with new investment in much needed infrastructure. Taken together these measures should help to boost confidence and help small firms to grow and succeed."
While the findings of the FSB index predate what has been a positive Budget for small firms, they will nevertheless prove a challenging read for policy makers seeking to gain small business support ahead of key 2016 Elections across the UK.
The report has been published on the same day Scotland’s First Minister Nicola Sturgeon; Labour Shadow Chancellor John McDonnell; and Leader of the Scottish Conservatives Ruth Davidson, are all due to address well over 1200 FSB members and other small business owners at the SECC in Glasgow.
Expected to be at the forefront of delegates minds will be the main barriers to growth highlighted in the FSB Small Business Index. The top five concerns remain the strength of the domestic economy, weak consumer demand, a shortage of skilled staff, increases to the cost of labour and the burden and complexity of the tax system.
As well as falling confidence, the FSB report also reveals how small businesses financial performance, productivity and hiring intentions are all falling year on year.