Responding to Office for National Statistics figures showing that GDP fell by 0.3% in March 2023 compared with the previous month, but rose by 0.1% in the three months to March, Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), said:

“The GDP fall in March sets the capstone on a disappointing first quarter for the economy.

“The monthly fall in the retail and wholesale sector’s output is especially eye-catching, and will not have been helped by March’s cold weather, which will have dampened sales. Small retailers are also highly exposed to inflation, with less negotiating power than their larger rivals. Consumer-facing services, including retail and hospitality, are running at almost 10% below pre-Covid levels.

“Small firms made up a lot of ground over the first three months of this year, according to our Small Business Index research, but their overall confidence reading ended up in pessimistic territory, with those expecting growth slightly outnumbered by small firms bracing for a hit to their prospects.

“The proportion of small firms reporting a fall in sales over the quarter outweighed those who said their revenues rose. The domestic economy was the most commonly-cited barrier to growth, showing the impact that subdued economic performance is having on small firms.

“Insolvency rates for the year so far are running at a high level, which spells bad news as the ripple effect of each company lost will affect others, impeding their own efforts to survive and thrive. It’s likely that the level of informal closures is also high.

“The base rate was increased twice in the first quarter, and yet again yesterday, turning up the margin pressure for many small firms with index-linked debts, and making new funding harder to come by, hampering investment and growth plans.

“With the cost of living crisis still in full effect, small businesses reliant on consumer spending are feeling the pinch, with retail and hospitality businesses far less confident than the average for all sectors, according to our figures. With the Energy Bill Relief Scheme phased out, some businesses in these sectors are now staring down the barrel of a tripling in their energy bills for April. Coupled with consumers' limited capacity to absorb higher prices, the situation looks precarious for those firms.

“It must be emphasised that economic pain is not evenly distributed – many small firms in different sectors and parts of the country are thriving, but many others are finding it very hard going indeed. Policies intended to help small firms expand and develop must be a priority for the Government – but are rather thin on the ground at the moment.

“We know what is needed to help small firms – reform of pre-profit taxes like business rates, tackling late payments once and for all, and allowing small firms stuck on energy contracts with sky-high rates to ‘blend and extend’ their contracts. If no action is taken, thousands of small business owners’ dreams will be needlessly dashed, and the economy will suffer as a result.”