The survey conducted by the Federation of Small Businesses (FSB) found that 55% of small firms out of the 1,200 surveyed are operating below capacity and do not expect any growth this year.
The rising cost of operations was confirmed by a record 87% of respondents compared to the same period last year, with 60% of businesses citing fuel as the biggest increase, 58% utilities, and 27% taxation.
The FSB stated that other areas which businesses stated were contributors to the higher outgoings were input with 48% of respondents pointing to labour costs.
The combination of the Covid-19 pandemic and Brexit has also forced the number of small businesses that export to a two-year low, with the FSB stating that many were considering ‘calling time on international sales’.
The FSB’s survey highlighted that the manufacturing and retail sectors have seen the biggest hit to their operations as supply chain disruptions continue with confidence in the manufacturing sector dropping to -9.1 and retail to 8.2.
One of the positive findings from the survey was that the FSB’s measure of business confidence had increased from the last quarter of 2021 going up to +15.3 which means that business owners expect an improvement in their commercial performance over the coming quarter.
However, this figure is down 12% on the same period last year but is up from the fourth quarter (Q4) which reported a figure of -8.5.
In contrast to the manufacturing and retail sector, businesses in the accommodation and food sectors saw a confidence score of +16.5 as they have benefitted from the relaxed travel rules while those in communication activities also saw a score of +32.1 as many adapted fast to hybrid working.
Martin McTague, national chair, FSB said: ‘It’s encouraging to see small business confidence back in positive territory, though the picture across sectors is distinctly mixed.
‘The small business community shrank in size to the tune of hundreds of thousands over the pandemic. As things stand, spiralling costs are eroding small business margins at a rate that many have never experienced before, while workplace absences are making it hard to operate at full capacity in a tight labour market.
‘At the same time, new paperwork and supply chain disruption are weighing on our importers and exporters, and an endemic poor payment culture continues to destroy thousands every year.’
The results of the FSB’s survey come after an Office National Statistics (ONS) survey of 9,000 businesses, which was published last Thursday, revealed that one in seven were not currently trading, one in three were having to pass rising costs onto customers, and one in 10 had been directly impacted by supply chain disruption.
It also comes as the Insolvency Service recorded that there were more than 5,000 corporate insolvencies in Q1 of this year. This figure was more than double that recorded over the same period in 2021, and was 15% greater than in Q1 2019, before the Covid-19 pandemic hit.
Commenting on the corporate insolvency figures last week, Rebecca Dacre, partner at Mazars said: ‘Between interest rates and inflation, this is the most difficult period for businesses since the height of the pandemic. This time they are having to manage without government support. UK businesses will be hit by the ‘cost of living crisis’, just as consumers will be.’
‘With no more government protection from their creditors, even more businesses can be expected to fail. Insolvency practitioners are now busier than they have been in a very long time. There has long been talk of a ‘wave of insolvencies’ that would happen once the insolvency moratorium was lifted. We are now starting to see it.’