Photographer: Chris Ratcliffe/Bloomberg

Brexit Only Part of U.K. Small Companies’ Confidence Decline

  • Higher wages, lower pound top firms’ concerns over costs
  • Sentiment turns negative for first time since end of 2012

The prospect of leaving the European Union may have cast clouds over small British businesses, but until Brexit’s meaning is clear they are more concerned with nearer-term problems.

For the first time since the end of 2012, an index of sentiment compiled by the Federation of Small Businesses fell below zero in the third quarter, meaning that more firms were pessimistic than optimistic about prospects. It was the third straight quarterly decline.

Three in five firms surveyed by the federation for a report published Thursday cited the domestic economy as a barrier to achieving growth, with rising costs leading their concerns.

While companies said a fall in the pound that followed the June 23 Brexit referendum lifted costs, a bigger factor was rising wages. The U.K.’s minimum wage was increased in April and is set to rise further through 2020.

“Many small business seem to have factored in the potential result of the referendum in advance of the vote,” federation Chairman Mike Cherry said in the report, the first major gauge of small businesses’ sentiment since the vote.

The decline in firms’ outlook came despite increases in headcount, credit availability and revenue.

“Clearly what we’re not seeing is any impact around Brexit,” Cherry said in a telephone interview. “What members are saying is they want certainty, as soon as somebody can give that to them.”

Along with rising costs, red tape was also a cause for concern. Small businesses want Chancellor of the Exchequer Philip Hammond to look at ways to reduce regulation and simplify taxes in legislative proposals due this autumn, Cherry said.

He also called on the government to clarify its position on big infrastructure projects like a proposed north-south high-speed rail line, saying small businesses hope for trickle-down benefits of spending on construction work. Prime Minister Theresa May this month gave the go-ahead to build the U.K.’s first nuclear plant in more than two decades, with Chinese backing.

“We’re very pleased with the engagement we’ve had with many ministers over the last few weeks,” Cherry said. “Hopefully that has set the road map that the government is going to follow in making sure that small businesses do get the right support toward growth.”

In a separate report, the CBI said its monthly survey of manufacturers showed that while a measure of export orders declined this month, producers expect overall output to increase in the fourth quarter. The trade body’s index of factory orders was unchanged this month compared with August, at minus 5.

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