Small business confidence hit post-Covid low in Q4 2024

Small business confidence in the UK has plunged to its lowest level outside of the COVID-19 pandemic, according to the latest Small Business Index (SBI) for Q4 2024 from the Federation of Small Businesses (FSB). The findings highlight the scale of economic uncertainty and reinforce calls for the Government to accelerate its pro-growth agenda.

The SBI confidence reading for Q4 fell dramatically to -64.5 points, a sharp deterioration from -24.4 points in the previous quarter. This 40.1-point drop marks the lowest recorded confidence level since Q1 2020, when the onset of the pandemic sent confidence tumbling to -143.4 points.

All major sectors affected

The decline in confidence was felt across all major sectors, with none reporting a positive outlook. The accommodation and food services sector recorded the lowest confidence reading at -111.0 points, followed by wholesale and retail at -94.2 points. Even the least pessimistic sector, professional, scientific, and technical activities, reported a bleak outlook at -40.1 points. The construction sector experienced the most significant confidence decline, dropping from -26.6 points in Q3 to -76.8 points in Q4.

Revenue and growth aspirations hit hard

The difficult economic conditions have severely impacted revenue performance, with 53.9% of small firms reporting a decline in Q4 compared to just 21.8% reporting growth. The net revenue growth balance stood at -32.1%, a significant drop from Q2’s -13.8%.

Looking ahead, small firms’ expectations remain subdued, with only 24.0% forecasting revenue growth in Q1 2025, while nearly half (49.9%) anticipate further decline. Moreover, growth aspirations have weakened, with only 43.4% of small businesses expecting expansion in the next 12 months, down from 51.2% in the previous quarter. Meanwhile, 24.2% of businesses are bracing for contraction—the highest level recorded outside of the pandemic.

Domestic economy and tax burden weigh heavily

The domestic economy remains the primary barrier to growth, cited by 65.3% of small businesses. However, concerns over the tax burden have surged, with 43.1% of firms identifying it as a key challenge. Labour costs ranked third at 42.0%, while consumer demand, typically a top concern, dropped to fourth place, cited by 28.0%.

FSB Policy Chair Tina McKenzie emphasised the urgency of government intervention: “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.”

McKenzie also highlighted the importance of tackling late payments, a persistent issue harming small businesses’ cash flow. She urged the Government to extend its regulatory focus to HMRC to alleviate the compliance burden, which costs small firms an estimated £25 billion and 280 million hours annually.

““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,” she added.

Emma Lovell, Chief Executive of the Lending Standards Board, emphasised the critical role of financial institutions in supporting SMEs through this challenging period:

“While they’re the backbone of the UK economy, SMEs are often dealt a tricky hand – and the subdued growth forecasts mean many will be relying on access to finance to survive, let alone thrive. Around 3 in 5 SMEs report facing financial difficulties, while 1 in 4 plan to take out new lending products within the year, highlighting a strong appetite for borrowing.”

Lovell called on lenders to adapt to the evolving needs of SMEs by offering flexible lending, faster approvals, and tailored support. She noted that responsible lending practices could be the difference between survival and closure for many small firms.