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70% of businesses put investment on hold because of Brexit uncertainty

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The UK’s Productivity Woes: A Deep Dive into the Latest Small Business Index Report

The latest Small Business Index (Q2) from the Federation of Small Businesses (FSB) paints a grim picture of the UK’s productivity levels, with no improvement in sight.

One of the key barriers identified in the report is political uncertainty, which is hindering business expansion and the efforts to boost productivity levels across the board.

Another major challenge highlighted in the report is the difficulty small businesses are facing in finding appropriately skilled employees. The data shows that 35% of small businesses are struggling to recruit the right talent, marking the largest proportion since Q3 2015. Additionally, the net balance of businesses hiring new staff versus reducing team size is at a three-year low of -2%.

Investment outlook is also bleak, with a significant 72% of businesses not planning to invest in their own companies over the next three months – the highest percentage since Q2 2017. This lack of investment is further reflected in ONS figures, which reveal a continuous decline in business investment over four consecutive quarters, a trend not seen since the financial crash in 2008.

Mike Cherry, FSB national chairman, emphasized the need for clarity and support from political leaders, stating, “It’s impossible for small business owners to invest for the future when we don’t know what the future holds.”

Long Road to Recovery

Be the Business, the Government’s productivity think-tank, predicts that it will take at least 10 years for UK business productivity to reach its full potential. James Gribben, senior corporate affairs manager at Be the Business, explained, “The UK has experienced a decade of under-performance and we will need a decade of improvements to turn things around.”

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Net migration from the EU has also seen a significant decline, posing challenges for small employers who rely on EU staff. With only one in five small businesses indicating their reliance on EU workers, the tightening of migration policies could have a detrimental impact on recruitment and operational efficiency.

Navigating the Path to Enhanced Productivity

Gribben pointed out that there are significant opportunities for small businesses to enhance their performance by adopting more effective practices and learning from the most productive companies in the market. He stressed the importance of strategic planning and targeted actions to drive performance gains.

However, the report also highlights concerns around the affordability of new credit, with 43% of small businesses citing it as unaffordable. This is the highest percentage since Q1 2015, indicating a growing financial strain on small businesses. The decline in successful credit applicants using external finance for growth further underscores the challenges in accessing necessary funding.

Mike Cherry underscored the critical role of the British Business Bank in supporting small businesses, particularly in light of the uncertainties surrounding Brexit and the potential withdrawal of European Investment Fund support. He emphasized the need for a robust financial ecosystem to facilitate growth and innovation within the small business sector.

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