As reported by SME today, small businesses saw a slight uptick in confidence during Q3, but with sectors like hospitality still struggling, the government faces calls for targeted support in the upcoming Autumn Statement

The headline confidence reading was -8.0 points in Q3, up from -14.2 points in Q2, but some way below Q1’s measure of -2.8 points. The last time the measure was in positive territory was in Q1 of last year, before rising inflation and the energy crisis took hold.

Among the major sectors, hospitality businesses had the lowest level of confidence, at -31.1 points for accommodation and food service activities. Retail and wholesale businesses were the next gloomiest, at -22.8 points, followed by construction at -7.7 points, manufacturing at -6.7 points, and information and communication at -3.5 points. The professional, scientific and technical sector was the only major segment to register a positive confidence reading, at 6.9 points.

The far lower confidence readings for small firms in hospitality and retail underscore the need for more support for these sectors, with the forthcoming Autumn Statement a chance for the Government to announce measures to help, such as an extension to the SME-focused 75 per cent business rates relief for retail, hospitality and leisure firms.

Small firms encountered mixed economic conditions in the third quarter, with a base rate hike in August followed by a decision to stick at 5.25% in September, and a welcome easing of inflation across the quarter, although rising fuel prices made an impact. Two in five small firms whose costs had changed compared with the same period last year said that fuel prices were a factor (40.4%), an uptick from the 37.3% who said the same thing in Q2.

Revenues over the previous quarter were marginally better than those reported in Q2, in keeping with the small recovery in confidence levels. A third (33.5%) of small firms reported that revenues increased over Q3, essentially unchanged from the previous quarter (Q2: 32.7%). Meanwhile, the proportion of small businesses reporting a drop in revenues over Q3, at 39.4%, was slightly lower than the 41.3% saying the same thing in Q2.

Likewise, there has been a small but welcome improvement in small firms’ revenue expectations over the coming quarter, with over a third reporting that they expect higher sales volumes (35.4%, compared with 32.4% in Q2), and three in ten (30.8%) saying they expect a decrease, down from 35.4% in the previous quarter.

Over the next year, half (49.6%) of small businesses aspire to grow in size, slightly down from the 51.3% who said the same thing in Q2, although the proportion expecting to contract also fell, from one in seven in the second quarter to one in eight in the most recent survey (Q2: 14.2%; Q3: 12.7%). The finding underlines the need for the Chancellor to look at how to boost small firms’ investment in growth in next month’s Autumn Statement.

Changes in employee numbers among small firms were finely balanced in the third quarter, as almost the same percentage said they expanded their payroll over the previous three months as said their workforce decreased in size (13.1% and 13.3% respectively). Looking ahead, hiring intentions have moderated somewhat compared to the previous quarter, with 11.7% of small firms saying they expect to employ more people, down from 15.5% in Q2 who said the same, with 9.1% reporting that they expect their staff numbers to decrease, very similar to the 9.4% finding from Q2.

The general trend towards stabilisation rather than growth or contraction was also seen among small exporters, with almost half (48.7%) saying their export volumes had stayed roughly the same in Q3 as in the previous quarter, up from just three in ten (30.3%) who said the same in Q2. However, this did mean that the proportion of exporters whose volumes rose fell from a third in Q2 (33.4%) to a quarter in Q3 (24.4%), with those reporting a decrease in exports also falling from 36.3% in Q2 to 26.9% in Q3.

Among businesses aspiring to grow over the next year, the domestic economy was once more the most commonly-cited potential barrier, chosen by 63.5%, up from 61.5% in Q2. Fuel cost concerns doubled in volume, from 7.9% in Q2 to 16.2% in Q3, while the cost of finance hit its highest level as a concern since Q1 2015, mentioned by 9.2% of small firms.

Rising costs ticked up slightly between Q2 and Q3, with 86% of small firms saying the cost of running their business was higher in Q3 than in the same period last year (Q2: 84.9%). Utilities (57.3%), inputs (43.1%), labour costs (42.8%), and fuel (40.3%) were the most commonly-cited causes of changes in business cost.

The findings on late payment underscore the need for the Government to take more action on the issue, with three in five small firms (60.8%) reporting that they have late payments, and with 27.9% saying they got worse over the quarter.