By Marcus Leach

With the welcome exception of manufacturing, the pace of recovery among Britain’s small businesses appears to have paused over the past quarter according to the Quarterly Survey of Small Business in Britain, which is produced by The Open University Business School and supported by ACCA (The Association of Chartered Certified Accountants) and Barclays Business.

After 18 months of steadily rising sales balances, they dipped back downwards towards the end of 2010 as more firms reported falling sales. Overall employment performance balances (-9%) were even worse, falling below those recorded in the previous quarter. This employment balance has now remained negative for more than two years.

The upturn in sales balances among small manufacturers identified in the previous survey has continued (from +9% to +14%). They are the most optimistic sector for the coming quarter (+23%) and report the highest positive expected investment balance (+5%).

This is despite on-going problems with the external business climate, competition and inflation. The Survey findings suggest that inflationary pressures are influencing pricing decisions in many sectors, with a balance of +25% for small manufacturers and wholesalers expecting to increase their prices, and even higher balances for small retailers (+39%) and the agricultural sector (+29%).

Small firms in the East Midlands continue to thrive. For the third quarter in a row, they have reported the best sales performance (+35%). The East Midlands and the North East were the only regions with positive employment balances over the past year (+5% and +4% respectively).

"With such persistent concerns over business conditions, it is hard to see how the small business sector can provide sufficient opportunities to absorb the expected flow of workers from the public sector. Yet it looks increasingly like this task is falling to the traditional heartland of the UK economy — the manufacturing sector," Dr Richard Blundel of the Open University commented.