More than a third of small businesses in the UK believe a current skills shortage is proving to be a barrier to growth.
The latest Federation of Small Businesses Small Business Index - used to measures the business community’s confidence in the economy - shows 36 per cent of firms see a shortage of skills as being a major issue, both preventing growth and driving up wage costs.
Alongside not being able to find staff with the right skills, concerns about the domestic economy and increasing labour costs are also cited as key factors holding back further growth plans.
Generally, the SBI results revealed confidence in the economy has cooled and many small businesses are now more cautions about their prospects than in recent quarters.
Gordon Millward, FSB regional chairman, said: “The recent budget left many small firms with real challenges to overcome in how they operate in future.
“Now they need reassurance from Government and policymakers; their confidence is crucial to driving the economy and job creation.”
The overall SBI reading at +20.3 is a significant decrease from +37.9 in the second quarter of 2015 and +41 reading a year ago.
After an initial boost given by the General Election, the FSB said these results reflect the impact of recent changes announced at the Summer Budget, notably increased taxes on dividends and steep increases in the national living wage.
Lower levels of confidence are reflected with more firms reporting a fall in investment intentions this quarter, which have fallen from 26 per cent 12 months ago to 22 per cent this quarter.
The number of businesses expecting to grow has also cooled slightly but remains positive. Nearly six in 10 small businesses - 58.7 per cent - plan to grow in the next year, down from 65.3 per cent in the previous quarter.
Some encouragement comes in the shape of hiring intentions, which show that small businesses are likely to continue to create jobs, although at a slower rate than previously.
A net balance of 5.3 per cent of firms have increased staff numbers over the past three months, down from 8.9 per cent in the previous quarter.
Annual wage growth continues to pick up, rising from 1.5 per cent in the first quarter of the year to 1.9 per cent this quarter, with businesses planning to increase wages at a rate of 2.6 per cent next year.
There is some positive news in the data on small business productivity. This continues to rise sharply, reaching three per cent this quarter, compared with 0.6 per cent 12 months ago.
Access to finance has continued to improve, with more firms successfully applying for finance and at lower interest rates.
The SBI shows exporters remain in robust mood, despite challenging international conditions and the headwinds of a strong pound.
Mr Millward said: “Despite confidence levels slipping back, our members remain steadfast in their intentions to grow, to create jobs and to export.
“The FSB will work with ministers to mitigate some of the obstacles that small firms now face, and we look for positive commitments in the Enterprise Bill, Spending Review and Autumn Statement so that our members can boost economic growth and deliver the jobs the economy needs.”