Positive signs welcome but past damage lingers

Growth measures targeted at small firms are a good start and should be built on to get the economy back in gear, according to business leaders.

The Consumer Price Index (CPI) rose by 3.4 per cent in the year to February 2024, down from 4.0 per cent in January – pointing towards a future interest rate cut.

Many of the key economic indicators published in 2024 have also shown slight improvements compared with 2023, giving rise to a feeling of “cautious optimism”.

Tina McKenzie, policy chair, at the Federation of Small Businesses (FSB), said: “Any easing in inflation brings relief to small firms, and the reported drop is a step towards reducing interest rates by the summer.

“However, we mustn’t discount the cumulative damage that has been done to small businesses’ margins and cash reserves by inflation having been so high for so long.

“With the fall reported driven largely by falling food prices for consumers, the hope is that this will ease some of the pressures on household budgets, to the eventual benefit of small firms in consumer-facing sectors.

“Small firms ended last year with a decrease in confidence levels, indicating that this first quarter would be tricky in many respects.”

She added: “In order for any optimism to be nurtured, the promising start signalled by the increase in the VAT threshold to £90,000, the announcement on apprenticeships and the business rate relief for small firms in the retail, hospitality and leisure sectors should be built on.

“What unites these growth-promoting measures is that they are targeted where they will have the most impact: on small firms, who are the ones with the potential to expand and kick the economic recovery into a higher gear.

“Measures to ensure employment levels are maintained and improved are also needed.

“Wage inflation has eroded the Employment Allowance’s relative value, underlining the need for it to be uprated, especially with the rise in the National Living Wage.

“This will help small employers keep people in work, and to grow their workforce.

“Politicians and policymakers should remember that small firms have been the driving force behind our recovery from past recessions, and this time around it’ll be no different, if they are given the right conditions to start up, scale up, and prosper.”

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