The number of small firms reporting a rise in operating expenditure is at a near-record high, with labour, fuel and utility costs weighing on growth ambitions, according to the latest research from the Federation of Small Businesses (FSB).
The Consumer Prices Index (CPI) was 2.4% in April, considerably above the Government’s 2% target.
More than seven in ten (71%) small firms report a rise in operating costs in Q2 2018. The figure is up 10 percentage points compared to the same period in 2016 and is close to the record-high proportion recorded six months ago (74%).
Almost a third (32%) say consumer demand is one of the biggest barriers to business growth, up from the same period a year ago (30%).
Utilities are flagged as a main cause of rising operating costs by more than a third (36%) of small firms, up from 24% in Q2 2016. The proportion citing fuel as a primary driver of higher expenditure has also risen sharply, from only 17% two years ago, to 28% in Q2 2018.
Labour costs (46%) remain the biggest cause of rising costs for small firms, while rent (22%) is a persistent concern. Last month saw a rise in both minimum wage rates and auto-enrolment contributions for employers, as well as an increase in business rates for thousands of small firms.
The number of small businesses citing the exchange rate as a main driver of rising costs is down this quarter to 17%, but remains considerably higher than the proportion registered in Q2 2016 (13%).
FSB National Chairman Mike Cherry said: “High inflation continues to make life uncomfortable for small firms. The pain felt by consumers is being passed on to businesses. One in three small firms now sees weak consumer demand as a main barrier to growth.
“There’s been a huge rise in the number of small firms saying that fuel and utility bills are key drivers of higher operating costs. This is money that should be spent on investment, recruitment and innovation. It’s vital that the Government’s fuel duty freeze remains in place.
“Labour costs are often front of mind for small firms. They’re now having to absorb the higher minimum wage rates and pension contributions that took effect last month. A rise in the Employment Allowance to £4,000 is urgently needed if we want to see record-high employment levels continue.”
Notes to editor
1) FSB surveyed 1,017 small businesses between 13 April and 27 April 2018.
As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.
FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.
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