Findings from the FSB’s latest Small Business Index (SBI) show that small businesses are feeling positive about their future prospects, with planned growth and investment at its highest since the Index began in 2010.
“These results give much cause for confidence and show that the UK’s small business population will be instrumental in supporting economic growth in 2015,” said Rob Harbron, Managing 
Economist for Cebr (Centre for Economics and Business Research), who produced the report for the Federation of Small Businesses. “Confidence is stabilising and low inflation is boosting profit growth.”
Going for Growth and Investment
The Q2 Index findings revealed that around 65% of small businesses are aiming for moderate or rapid growth in the next three months, and small business productivity is on the increase in comparison to the economy as a whole. The FSB’s Productivity Index reveals that workers’ annual output per hour rose by 1.4% year-on-year in Q4 2014 among small businesses, compared with 0.3% in the wider economy, while spare capacity levels have dropped from a balance of 47.7% to 40.7%.
This quarter’s SBI also shows a record number of businesses are planning greater business investment, with nearly 32% of businesses planning to increase capital investment over the next year.
“Strong capital investment intentions and increased worker productivity are encouraging as they play a key role in a sustainable economic growth path,” said Mr. Harbron.
An Unequal Recovery
While the Index shows confidence levels remaining steady at +37.9, up from +28.7 in the first quarter of 2015, this is down slightly from the all-time high reading of +39.7 a year ago, and the survey results still suggest that the recovery is not progressing equally across the country.
Business confidence is still highest in the South East, followed by the west and east Midlands, but Wales has seen a fall in confidence and employment. Confidence figures are also lower in Scotland than in the UK overall.
Wages, Exports and Profits on the Rise
So why has small business confidence markedly improved in the second quarter? The SBI research found that business revenue and profits are on the rise, with a balance of 24.1% of firms reporting increased revenue and a balance of 17.4% reporting higher profits. The number of small firms exporting has also increased from 25% to 28.6%, and small business wage increases are now averaging at 1.9%, in line with the economy overall.
Maintaining the Momentum
“The results of the Q2 Small Business Index are very positive and show the major role that small businesses play in the growth of the UK’s economy,” said John Allan, National Chairman of the FSB. “It is critical the new Government continues to develop the right environment to support businesses planning to grow, invest and take on new staff in the next 12 months. In the Budget and its upcoming Enterprise Bill, Ministers should prioritise supporting small business growth, simplify business taxes, raise skills and tackle poor payment practices.”