Expectations that the economy will improve over the next 12 months are substantially down from previous highs in the last quarter, a study shows.

Confidence fell 11 points in the Smith & Williamson Enterprise Index as respondents reacted to ongoing global economic instability and two successive statements from George Osborne which were ‘less than friendly to SMEs’.

Guy Rigby, head of entrepreneurial services at the firm says that optimism among respondents for their own prospects over the next 12 months declined by 8 points to 74 per cent and there is little support for an interest rate rise. 

However, 24 per cent of respondents recognise that business confidence is being adversely affected by the Bank of England’s decision to maintain interest rates at historically low levels.

The negativity surrounding the economy, and business prospects, over the next 12 months is offset by the belief in a growing talent pool, Rigby argues.

More than 64 per cent of respondents plan to increase headcount in the next quarter with 50 per cent believing the employment pool to be adequately trained, both reaching highs not seen since the end of 2013.

‘Uncertainty over UK interest rates, economic troubles in China, a potential Brexit and upcoming US political instability will continue to trouble financial markets throughout 2016 and so this declining confidence could be a sign of things to come,’ Rigby says.

‘With optimism surrounding recruitment normally reaching its peak at the start of the calendar year, it will be fascinating to see whether the Enterprise Index can maintain its strong reading if this early year hopefulness recedes.’

George Osborne announced major changes in the latter half of 2015 which threaten to adversely impact many entrepreneurs and their businesses.

In the Summer Budget he announced changes to the taxation of dividends and in his Autumn Statement he put forward his plan for quarterly tax reporting by 2020.

Following a ten-point drop in the last quarter, respondents continued to react with a further four-point decline in the belief that current government policy is supportive of private enterprise.

In particular, 59 per cent believe that the increase in the level of taxation on dividends will negatively affect SME business growth.

‘Essentially, these changes mean that businesses could end up bearing substantial extra cost just to maintain the status quo, Rigby says. 

‘Many owner-managers will find themselves on the wrong side of the dividend tax changes and the introduction of quarterly reporting could be both burdensome and expensive.’

However, he adds that, notwithstanding these negatives, British business remains relatively robust with strong domestic demand and productivity starting to trend higher.

‘As a result over 68 per cent of our respondents believed that 2015 was a positive year for British business.’