OPTIMISM among the UK’s smaller firms has tumbled to its lowest level since the wake of the EU referendum amid unprecedented political and economic uncertainty, according to the latest Federation of Small Businesses (FSB) Small Business Index.

The index stands at +1 in the third quarter of 2017, down from +15 in the second quarter, and close to the -3 seen immediately after last summer’s Brexit vote. One-in-eight small businesses (13%) now expects to downsize, hand on or close their business. The figure is at its highest since the Small Business Index launched in 2012.

The new research shows a majority of small firms reporting a rise in operating costs compared to the same period last year. Labour costs (42%), taxation (21%) and rent (19%) are all frequently mentioned as causes of this increase.?Small businesses most frequently identify the domestic economy and consumer demand as barriers to growth. Consumer-facing firms in the retail and entertainment industries report some of the lowest levels of confidence.

Mike Cherry, the FSB’s national chairman, said: “Rising inflationary pressure and a weakening domestic economy are the twin drivers of plummeting confidence among small firms and consumers alike.

“A record proportion of business owners currently expect to downsize, sell or shut up shop, while rent and taxation are frequently mentioned as causes of increased costs.”

Exporting small firms remain optimistic about their prospects. The proportion reporting an increase in overseas sales is at a three-year high and a similar proportion expect export growth to continue over the coming quarter.?The net balance of firms reporting higher revenues has hit a four-year low, while the proportion applying for credit is at its lowest since 2014.

Employment intentions remain stable, with the net balance of firms expecting to increase headcounts up compared to this time last year.