Small firms ended 2010 in less confident mood than they began it, according to a new survey.
The latest Voice of Small Business Index published by the Federation of Small Businesses (FSB), which covered the final three months of last year, found that optimism fell for the third consecutive quarter.
The net score in the survey, aimed to test the general health of the small business sector, slipped to -13.2.
At the start of the year the confidence index stood at 16.2.
Overall, the figures, which covered some 1500 firms, revealed that the private sector recovery lost momentum in 2010.
As a consequence, given the constraints on businesses imposed by increases in utility bills, fuel duty and VAT, growth in 2011 is likely to be sluggish at best, the FSB said.
Firms were particularly badly hit by the severe weather at the end of the year and the rise in VAT to 20 per cent at the start of 2011.
The report also showed that small businesses expect employment growth to weaken in the coming months, with 77 per cent of small firms expecting to keep employment levels the same, but 12 per cent expecting to reduce staff numbers, up from 10 per cent in third quarter of last year.
To help small firms develop, the FSB wants the Government to make the tax system more competitive and to introduce a fuel duty stabiliser.
John Walker, the FSB’s national chairman, commented: “A number of pressures on small businesses are beginning to come to a head, such as the increase in VAT and fuel duty, placing more strain on cash-flow. This combined with the severe weather at the end of 2010 has meant that small firms are not as confident about their prospects in 2011.
“With inflation above target and the labour market still weak, small firms cannot rely solely on the consumer for growth in 2011. So it is imperative that the Bank of England base rate is kept at 0.5 per cent, as once the impact of the VAT rise is excluded, inflation is relatively low.”