March 9 2015.

Small business confidence remains robust and firmly in positive territory, according to the first quarter results of the FSB's Small Business Index. Lower business costs and current economic conditions are relieving pressure for firms, giving them the confidence to take on new staff, reward staff with pay increases, and successfully access finance from their banks to invest in and build their business.

Businesses are increasing the number of people they are hiring for work, figures for the last three months show, twice as strong as 12 months ago. Many businesses are also finally able to reward staff with improved pay packets, which the results suggest have been supported by rising productivity growth, with the highest pay increases in the accommodation and food, and manufacturing and construction sectors.

Low inflation is helping businesses' bottom lines with the lowest-ever proportion of businesses reporting a year-on-year increase in costs, as well as putting more money in consumers' pockets to spend in these businesses thereby boosting confidence.

Against a very positive set of results, businesses continue to struggle with skill shortages, which are hampering growth. Thirty seven per cent of businesses tell us that employing someone with the right skills is a barrier for them to grow their business. This number is on the increase, a sharp rise from 25.4 per cent recorded 12 months ago.

Increasing exports against tough trading conditions in Europe is also proving to be difficult for businesses. Despite these headwinds, they nonetheless remain optimistic about prospects to increase exports in the coming months.

Key Findings:
- The Small Business Index, a measure of small business confidence in the UK shows confidence levels are firmly in positive territory at +28.7 points, up +11.1 points last quarter. This is slightly lower than this time twelve months ago (+35.7) but indicates that confidence remains robust.

- The positive sentiment is reflected in rising revenues and profits, with a net balance of 19.5 per cent reporting that revenues grew over the past three months, and a net balance of 12.5 per cent report the same for gross profits.

- A net balance of 4.2 per cent of small firms have taken on new staff in the last quarter, up from a net balance of 2.1 per cent a year ago.

- Small businesses are beginning to feel the effect of low inflation. The lowest-ever proportion of businesses (44.4%) currently report a year-on-year increase in costs, compared to 60.3 per cent during Q1 2014.

- In the year ahead, small businesses expect to increase pay at a faster rate, with an average salary increase anticipated of 1.8 per cent. This is the up from 1.5% over the past year. Real Estate is the only sector where wages have gone down.

- Thirty seven per cent of businesses say getting staff with the right skills is a barrier to growth compared with 25.4 per cent 12 months ago.

- The number of businesses who have applied for a loan from their bank and been approved has increased to 57 per cent compared to 45 per cent 12 months ago.

- The FSB's Productivity Index has now risen for three consecutive quarters standing at 1.3 per cent, up from 1.1 per cent last quarter.

John Allan, National Chairman, Federation of Small Businesses, said: "Our latest results once again paint a positive picture for small businesses with confidence amongst members remaining high, and nearly all the major indicators heading in a positive direction. The Small Business Index shows that lower business costs are enabling employers to hire new staff, showing the substantial impact small firms are having on growing the UK's economy. It is also incredibly encouraging to see the banks approving more credit for small firms, suggesting we may have finally turned a corner on this front.

"One of the few areas of concern within the positive picture remains skills. It's crucial that new and existing small firms have appropriately skilled staff and targeted support at a local level to grow their businesses. Better skilled workers are critical for the UK to close the productivity gap and achieve long-term economic growth; as well as compete with other countries in the G7, such as France and Germany. That is why we must put in place a quality, employer-led apprenticeship system to widen our skills base.

"We want to see the next Government build on current momentum and create conditions which promote further growth and rebalance the economy. It is important that a new Government follows through measures outlined in our Business Manifesto to provide a stable environment for small firms, with measures built for the long-term to provide the stability businesses require."