GDP Q4 outlook conditions still ‘incredibly tough’ for small firms

Responding to new Office for National Statistics figures showing that GDP rose by 0.5% in October 2022 compared with the previous month, but fell by 0.3% for the three months to October, Federation of Small Businesses (FSB) National Chair Martin McTague, below, said: “Small businesses are struggling with energy bill hikes and the impact of strikes as we head into the festive period, and the outlook is increasingly bleak. With no or little cash reserves, and a weaker consumer economy to rely on, small firms are always more vulnerable to downturns.

“It’s important to note that while the October GDP figure is better than September’s, it is not a fair comparison. September’s figures reflected a period of suppressed economic activity after the sad death of HM The Queen. Conditions are still incredibly tough for many, and there is no room for complacency. The fact that consumer-facing services, such as hospitality and retail, are still 8.9% below their pre-coronavirus levels is striking, and spells out the scale of the difficulties facing small firms in those sectors.

“It can’t be said enough – small firms are facing a cost of doing business crisis, with inflation eating away at margins, and sky-high energy prices making just keeping the lights on a fraught decision. Add in disruption from recent industrial action and a squeeze on access to finance, and the picture is very far from rosy.

“The Bank of England looks set to increase the base rate again later this week, which will turn the ratchet for businesses with index-linked debts, reducing their room to manoeuvre even further. Future rises need to take into account not just the need to tackle inflation, but also not to hit economic growth so much that the recession accelerates into an even bigger slump.

“Since the onset of Covid, we’ve lost half a million small firms, and given the difficulties around trading that this year has presented, we are looking to a 2023 where our community could shrink further, rather than grow, which is bad for the economy, for jobs, and for communities.

“We want to see small firms’ chances of surviving and thriving given the highest possible priority, starting with an indication of the level of support on energy bills which will be available once the Energy Bill Relief Scheme closes at the end of March. Forward planning will be impossible without some idea of what will be on the table.

“Late payments are a long-running sore spot, and the recently-announced consultation is good news, but must be expedited as rapidly as possible to ensure that vital cash is flowing through supply chains, rather than being held up by large corporates for no good reason.

“We would like to see business taxes rebalanced, so that duties which hit small firms and start-ups before they’ve made a penny of turnover – such as business rates, and National Insurance – are less onerous, and less of a barrier to entry into the business world, let alone growth.

“The value that is destroyed when a small firm closes goes beyond the economic – communities are left behind, and the scars of unemployment take years to fade, if they ever do. The damage that will be done if small business closures accelerate is more than enough reason for the Government to act.”