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FSB research indicates growth ahead for 2013

Posted on 18 December 2012

FSB research indicates growth ahead for 2013

Small firms cautiously optimistic heading into 2013 as they look to invest and more access finance

Latest research by the Federation of Small Businesses (FSB)
shows small firms are displaying cautious optimism heading into the New
Year and a greater level of confidence compared to the same time last
year.

While the Small Business Index – the measure of confidence in
the sector – fell by 1.1 points against Q3 to record a score of -5.6, it
is some 18.8 points higher than Q4 last year – just as the economy
entered into double-dip recession.

The Small Business Index has been a good indicator of GDP, so
with recent forecasts indicating that growth will continue to be slow in
2013, this slight optimism will provide good news. However, weighing
against that optimism are the cost pressures which still face small
businesses. Those sectors that rely on discretionary spending are
struggling as incomes remain squeezed. Almost two thirds of respondents
cite the weak domestic economy as a block to achieving their growth
aspirations, showing how the optimism felt comes with a health warning.

Fewer small firms applied for finance in the quarter, but in
good news, of those that did a higher proportion were accepted – 49.3
per cent up from 42.8 per cent in Q3. This is a move in the right
direction, but less than one in 10 respondents still consider credit to
be easily available. The FSB wants to see the new business bank improve
competition in the sector and promote alternative sources of finance –
especially for more businesses to be able to bring forward investment
decisions.

Investment is a priority for around a third of firms in the
coming 12 months. The FSB hopes that the increase in capital allowances
announced at the Autumn Statement means that this number will increase.
By allowing small firms to invest up to £250,000 into their business
without paying tax will hopefully provide enough of an incentive to
bring forward investment plans.

Despite this cautious optimism, the FSB warns that the
environment in 2013 looks to remain challenging as inflation and energy
prices will continue to affect both households and small businesses'
finances. The cancellation of January's 3p fuel duty increase will help
firms, but the FSB believes that road-users need greater certainty to
what their overheads will be from one budget to the next.

John Walker, National Chairman, Federation of Small Businesses, said:

"This quarter's report shows cautious optimism from the
UK's small firms. There's no doubt that it is still a tough environment
and the Autumn Statement highlighted that it's going to be tougher for
longer. However, small firms want to get on, grow their business and
invest. We urged the Chancellor to put small firms at the heart of the
Autumn Statement and many of his plans will help – especially raising
the tax free investment limits.

"However, there is still more to do – especially around
accessing finance. While more small firms have been accepted this
quarter, it is clear from our research that others continue to struggle.
Previous recessions have shown that demand for finance is at its
highest during the recovery stage. The independent SME finance monitor
concluded that businesses are unconfident that the banks will lend to
them. The fact that fewer firms applied seems to corroborate this and
further highlights the broken relationship between small firms and the
banks. The small business bank needs to address this by opening up
competition, especially if small firms are to bring forward investment
plans."