Business confidence lifts, but can small firms trust it?

Feeling bullish? Small businesses must keep their guard up

Feeling better does not mean the danger has passed. Some business confidence figures have recovered, but rising costs and global uncertainty could quickly spoil the mood. Small firms should use any breathing space to strengthen their businesses, while keeping their ambitions alive.

RIGHTLY CONFIDENT or TOO COCKY

Business confidence is ticking up. Many of the usual business confidence surveys, indices and monitors including from the Institute of Chartered Accountants of England and Wales, are showing optimism improving across services, retail, hospitality and even parts of manufacturing. Many stats are still in negative territory but not as negative as they were.

The global backdrop is anything but calm: two regional wars, energy shocks and ongoing volatility, rising inflation, strained supply chains, and geopolitical tension between the US and just about everyone else. The miracle, as IMF officials meeting in Bangkok have noted, is that we are not in a full‑blown global crisis.

Relief

Photo by Rob Wicks on Unsplash

Despite global instability, several factors are giving businesses a sense of relief. Prices are still high, but the pace of increase has slowed. For small firms, this feels like breathing space.

Energy markets have stabilised (ish)

The energy shock is real, but it’s not escalating for now. Even though energy and fuel have stabilised at high prices, businesses can plan again, proving again that certainty is the name of the game.

Supply chains are functioning

They may not be functioning as smoothly as businesses would like but they’re functioning. After the chaos of 2021–23, “functioning” feels like progress.

Consumers are still spending

Spending may be cautious and selective, but consumers are still spending and that’s keeping many microbusinesses afloat, although not in all sectors.

There’s no global financial crisis yet

We’re not in a 2008‑style meltdown. The banks are stable, even though the threat of bank taxes rising in the Budget has negatively affected their share prices, and credit markets are open. There is liquidity available….for now.

Businesses have adapted

Small firms have become experts in cutting costs, diversifying, switching, digitising, adjusting pricing and managing cashflow. Being able to adapt and carry on builds confidence.

It Could Prove Misplaced

Confidence is rising because things haven’t collapsed and not because conditions are strong. Small and micro businesses must be aware of the risks beneath the surface.

Two regional wars are still destabilising prices: energy, food, shipping and insurance costs could spike again without warning.

Inflation is easing but not gone and borrowing costs are still high, Government debt is expensive and public finances are strained. This limits support for small businesses, and the budget needs to address these constraints on growth.

Supply chains are fragile: one shock such as a strategic port closure, a shipping disruption, a sanctions escalation, could derail them and hit small import‑dependent firms hard.

Consumer confidence is uneven: households are still cautious with reason and rises in energy or food prices are still in the pipeline and will hit discretionary spending, again.

Geopolitical tensions could escalate in various parts of the world and affect trade agreements and trade routes. This affects everything coming in and out of the UK and leaves small firms relying on export orders and imported goods, exposed.

Governments have less fiscal room: higher debt‑servicing costs mean there’s lot less money for grants and relief schemes. Budgets are tighter and infrastructure spending slows down. Small businesses shouldn’t expect major support packages.

Short‑Lived

Confidence is rising because the worst hasn’t happened, not because the fundamentals are strong. Having survived makes many small businesses stronger and more optimistic. The risks that could reverse confidence quickly include higher energy and fuel costs over the winter and any escalation of conflicts that disrupt shipping. Other events such as more high profile cyberattacks, a sudden fall in lending or consumer spending falling could have the same impact. Small businesses should treat current confidence as a window rather than a guarantee and try to be as prepared as possible.

Use It

Business confidence is improving because the global economy has avoided disaster, not because conditions are strong. We need to use the optimism rather than trust it. Anything you can do to prepare for future volatility and rebuild resilience now will stand you in good stead whether there are worse business conditions ahead or not. Confidence is welcome but fragile. Small businesses should treat it as an opportunity to strengthen, not a signal to relax.

There’s another side to the confidence coin. It can be talked up or down. Maybe it’s time to cash in on the stats and start talking (optimistically) about better times ahead.