A survey carried out by the Federation of Small Businesses (FSB) has found that 55% of small firms don't see any potential for growth over the next year.
Out of the 1,200 SMEs surveyed, 87% confirmed that costs are up compared to last year, with 60% citing the fuel costs as the biggest increase, 58% citing utilities and 27% on taxation.
Labour shortages also pose a challenge, with 48% of businesses believing this was a major factor in the slowing of their growth.
The FSB report follows another set of figures from the Office for National Statistics, which showed about one in seven of the 9,000 businesses surveyed were either partially trading or had temporarily paused.
Almost a third said rising costs were being reflected in their prices and one in 10 had been directly impacted by disruptions in their supply chain.
Martin McTague, national chair of the FSB, said:
"The small business community shrank in size to the tune of hundreds of thousands over the pandemic.
"As things stand, spiralling costs are eroding small business margins at a rate that many have never experienced before, while workplace absences are making it hard to operate at full capacity in a tight labour market."
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