UK small business confidence in the last quarter has bounced back to the level reported before the EU referendum campaign began.
The latest Small Business Index survey results from the Federation of Small Businesses (FSB) shows that at the start of 2017, the UK's small firms are upbeat about their prospects with the index moving into positive territory.
The headline confidence measure now stands at +8.5, up from -2.9 in the previous quarter and almost at the same level as it stood at the start of 2016 (+8.6).
Mike Cherry, FSB national chairman, said: "We are delighted to see confidence bounce back at the end of 2016, effectively wiping out the fall we saw over the course of the year in the run-up to the EU referendum and its immediate fallout. The current economic outlook seems brighter and UK small businesses are ambitious and want to make the most of it."
However, although confidence is positive and there are areas of strong performance, most small firms are not seeing this feeding through to profits. Profitability has dropped for the second quarter in a row. In addition, investment intentions remain subdued and have fallen compared to last year with costs of doing business continuing to rise.
"Despite the overall positive picture, our members still face many challenges as rising costs squeeze margins even further," said Cherry. "The falling pound is driving up the price of imports and rising oil prices are being reflected in higher fuel costs. These inflationary pressures and price competition are hitting the bottom line hard with the majority of small firms seeing their profits continue to fall."
There has been a dramatic increase in the number of firms citing the exchange rate as the main cause of cost inflation, as the pound remains at consistently lower levels against other major currencies.
Given these conditions, the share of small businesses aspiring to grow over the next 12 months has slipped, with a significant increase in those expecting to stay the same size - 37% compared with 27% in Q2 2015.
To increase economic growth and productivity, the FSB says the Government must look at how the business policy framework can help all small firms move into moderate growth - and not simply focus on start-ups and scale-ups alone.
The FSB is calling for a "full-throated, pro-business Budget" on 8 March and Cherry said: "an increase in the Employment Allowance, to help small firms boost job creation, would be a good place to start."
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