Quarterly GDP fall shows costs crisis is firmly entrenched, small firms warn

The national GDP figures fell 0.1 per cent fall in Q2 signalling a weakening in consumer spending that FSB national chair Martin McTague said is what small businesses rely on to stay afloat.

“The estimated fall in the headline GDP measure in Q2 is unwelcome but unsurprising news for small firms, whose confidence nosedived over the quarter, according to our research,” he said.

“The 0.2 per cent real-terms fall in household consumption despite rises in outlay on housing and travel is a flashing alarm for small businesses, many of whom rely on consumer spending.

“With levels of fuel poverty skyrocketing, fuel costs far higher than they were in the same quarter last year, and rent costs rising steadily, there is less left in people’s pockets for holidays, new clothes, meals out, and other discretionary spending, leading to lower sales for many small businesses.”

Mr McTague said the fall in GDP follows the 1 per cent fall in the wholesale and retail trade over the quarter that is deeply concerning, with supply chain disruption causing huge headaches and extra expense for businesses.

“Small firms were also hammered over the quarter by rising taxes. The National Insurance hikes in April have piled more financial stress onto the cost of running a business, at a time when inflation has spiked to a four decade high,” he said.

“We have been urgently drawing attention to the cost of doing business crisis for months now, as our members tell us that they are struggling to keep up with ever-rising costs – producer input prices rose by 24 per cent in the year to June 2022, the highest level registered since records began in 1985.”

With the rise in the cash rate, there is now a higher cost of borrowing for many kinds of commercial and personal debt, he continued, which also will dampen consumer spending.

“There is no excuse for the Government to sit on its hands, with the very survival of thousands of small businesses at stake, and a recession looming,” Mr McTague said.

“The GDP figures must be a wake-up call to policymakers that urgent intervention is needed.

“A menu for recovery should include help for small businesses on energy bills, a reversal of the National Insurance hikes, a VAT cut, a reduction in fuel duty, and rooting out the late payment crisis that leads to the demise of thousands of otherwise viable small businesses every year.”