While the FSB’s Voice of Small Business Index reported drops in small business confidence for each consecutive quarter in 2010, it jumped back to +6.7% in the first quarter of this year. A healthy 36% of small firms expect overall business performance to pick up in the next three months.
But it’s probably not champagne time just yet. These things are always relative; last year was pretty gloomy, after all. And if small businesses are becoming more bullish, they haven’t been confident enough to start taking people on again. In fact, the employment picture seems to be getting worse, if anything. At the end of 2010, the Index found a balance of -2.5% of businesses expecting to cut jobs (that's the difference between the number expecting to cut jobs and the number expecting not to). But in practice, the figure turned out to be -6.5%. So lots of firms who hadn't expected to reduce headcount ended up doing so.
That’s hardly an encouraging stat, particularly since unemployment figures released last week showed both female and youth joblessness rising in the three months to February. John Walker, the FSB’s chairman, described this as a ’worry’, and it's clear why: the private sector (including SMEs) has been earmarked by the government as the key to creating the jobs that will help the economy bounce back from the public spending cuts.
Indeed, it’s perhaps no surprise that business confidence is weakest in those areas heavily dependent on the public sector. Small firms in Northern Ireland are least confident at -25%, and Wales is second lowest at -11%.
Yet you can’t really blame small businesses if their optimism remains a bit superficial. As well as the cuts, Walker complained that SMEs had to deal with a ‘rush of challenges’, namely - you guessed it - the VAT hike, inflation and soaring fuel prices.
The positive angle here is that things do seem to have perked up since before Christmas. But there's clearly a long way to go, particularly on the jobs front.