In an era marked by economic challenges, small businesses in the UK are expressing renewed optimism for the future. According to the Federation of Small Businesses (FSB), the Small Business Index (SBI) for the first quarter of 2024 reflects a significant surge in confidence, marking the most substantial increase in recent years. For the first time since 2018, the index has climbed above zero, settling at +5.5 points—a notable rise from the -15.0 points recorded in the preceding quarter.
The manufacturing sector led this positive shift with an increase of +19.2 points, rebounding from a challenging last quarter. However, the accommodation and food services sector remains less optimistic, with a current rating of -11.8 points despite making the largest quarterly gain—from -73.0 points at the end of 2023. On the contrary, the information and communication sector experienced a decline, with its confidence score falling by 17.3 points to +7.1.
Tina McKenzie, Policy Chair at FSB, commented on the recovery, noting, “It is encouraging to see small business confidence returning to positive territory at the start of 2024. This rebound across most sectors suggests that the shallow recession at the end of last year is now behind us, setting a foundation for future expansion and improved trading conditions. However, notable challenges persist, particularly for the hospitality sector.”
Despite these positive indicators, financial stability remains a concern for many small businesses. In the first quarter of 2024, only 32.0% of small businesses reported an increase in revenues, while 40.5% observed a decrease in sales volumes. The majority, however, remain optimistic about the future, with 45.7% anticipating higher revenues and 52.4% expecting expansion within the next year.
Inflation continues to impact small businesses, with 83.7% reporting higher operational costs compared to the same period last year. The primary drivers of these increased costs were utility bills (55.2%), labor costs (48.1%), and rent (26.4%). There is a slight improvement in the financial sector, with 16.5% of small businesses finding the availability and affordability of new finance favourable, up from 14.5%.
Looking ahead, economists are optimistic about the UK’s economic performance, with GDP figures for March anticipated to show a 0.1% growth over the previous month, culminating in a 0.4% increase for the first quarter of 2024. Such growth would mark the end of the recession experienced last year, when the economy saw minimal expansion.
McKenzie further emphasised the broader economic context, “While the first quarter saw a dip in revenues due to post-festive reductions, the outlook for the upcoming quarter is markedly more positive. Small businesses are transitioning out of survival mode, bolstered by an easing in the crisis of business costs and energy expenses.”
She also highlighted the significant impact of the pandemic on the small business community, which saw a reduction of approximately half a million businesses. “There is a pressing need for political leaders across all parties to focus on fostering growth and supporting investment from start-ups to scale-ups,” McKenzie asserted. She called for banks and financial institutions to adopt fair and supportive practices towards small firms to facilitate their growth and success.