Small business confidence hit its lowest recorded point outside the COVID pandemic in the fourth quarter of last year, according to FSB’s Small Business Index (SBI).

The headline confidence reading fell from -24.4 points in Q3 to -64.5 points in Q4.

This is a fall of 40.1 points, and the lowest reading on this measure since the -143.4 points registered in the first quarter of 2020, when COVID first broke out in the UK.

The confidence score is calculated by giving double weight to responses which express stronger confidence or pessimism, before summing up all responses to give an overall impression of how small firms view their prospects over the next three months.

Such a low confidence reading at the end of last year underlines how much the Government’s push for growth, as outlined by the Chancellor in her recent speech, needs to be implemented as soon as possible, and built on with an ambitious Small Business Strategy followed swiftly by legislation.

Key Findings:

• The Small Business Index (SBI) for Q4 2024 from the Federation of Small Businesses (FSB) found small firms’ confidence levels at -64.5 points, a deterioration from -24.4 points in the previous quarter

• The confidence tumble was reflected across all major sectors, with accommodation and food services registering the lowest score, at -111.0 points

• A quarter (24.2%) of small firms are braced for a contraction in the size of their business in the first three months of 2025

• The findings give extra weight to the Chancellor’s recent speech calling for growth to be unlocked, with small businesses key to the growth agenda.

All Major Sectors Affected

The confidence tumble was recorded across all major sectors, with none managing to register a positive confidence score.

Accommodation and food services was the least optimistic major sector, with a confidence reading of -111.0 points, followed by the wholesale and retail sector at -94.2 points, while firms in the professional, scientific and technical activities sector were the least pessimistic, at -40.1 points. Construction saw the largest decline in confidence between Q3 and Q4, going from -26.6 points to -76.8 points.

Revenue performance hit a record low over Q4 among small firms, with the one in five (21.8%) who said that their revenues had grown more than offset by the over half (53.9%) who said they had worsened, a net revenue growth balance of -32.1% (Q2’s net balance was -13.8%).

Just as concerning, net revenue predictions for the coming quarter fell significantly to -25.9%, with just a quarter (24.0%) of small firms forecasting a rise in revenues in Q1 and half (49.9%) predicting a fall.

Domestic Economy Seen As The Main Barrier To Growth

While the domestic economy (cited by 65.3% of small businesses) was once again the top barrier to growth identified by small firms, the tax burden jumped upward into second place as a cited concern, with over two in five small businesses (43.1%) raising it as one of their top barriers.

Labour costs were in third place, cited by 42.0% of small firms, while consumer demand – usually in second or third place in the rankings – slipped to fourth place, cited by 28.0%.

Growth Aspirations Subdued

2025 could see lower levels of expansion among small businesses, with two in five (43.4%) saying they believe their business will grow over the next 12 months, down from over half who said the same thing in the previous survey (51.2%).

The proportion bracing for contraction, meanwhile, jumped to a quarter (24.2%), its highest-ever level outside the pandemic, and a notable increase from 14.6% in Q3.

Tina McKenzie, FSB’s Policy Chair, said: “The fourth quarter blues reported by small firms underline how urgently the Government’s growth push is needed. Small firms are understandably nervous about their prospects as 2025 gets underway."

“The upcoming Employment Rights Bill is a major source of stress for small firms, with nine in ten business owners saying they are concerned about its introduction, and this is undoubtedly a major cause of the very subdued confidence levels seen in our research."

“On the plus side, the Government’s plans to reduce late payment – a perennial source of financial pain and misery to small firms – cannot come soon enough. Improving small firms’ cashflow will relieve countless headaches, and free up the mental space for them to make plans to invest – based on reliable cashflow predictions, rather than subject to the whims of their customers."

“The Government has called for regulators to put forward ideas to nurture growth, while we sent our own list of suggestions targeted at helping small businesses, which we look forward to seeing adopted within the regulatory system. We would encourage the Government to extend this push to more of a pro-growth mindset to HMRC as well. Small firms collectively spend £25 billion and 280 million hours on tax compliance each year; reducing those amounts even by just a few percent would be great news for productivity, and for stress levels among small business owners."

“In the Spending Review, the Government must prioritise spending on programmes that will deliver small business growth."

“The King’s Speech later this year should include a Small Business Bill, to bring together the different strands of support and reform needed to give people dreaming of starting their entrepreneurship adventure the confidence they need to go for it, and to help people running small enterprises and in self-employment to expand and fulfil their potential.”