More than seven in 10 firms in a survey by the Federation of Small Business (FSB) said they did not expect to raise capital spending in the next quarter, the highest figure in two years.
The FSB says the current standstill over Britain’s path to Brexit has left small firms “hamstrung” and struggling to expand, hire and increase productivity.
The FSB survey also suggests growing caution among lenders as signs stack up of a slowdown in the UK economy.
More than four in 10 of its member firms said new credit was “unaffordable,” the highest in more than four years.
Lending to consumers also increased at its smallest annual rate in more than five years in May, according to separate data from the Bank of England.
In the manufacturing sector, a key index of UK performance slid to a six-year low on Monday, as a survey highlighted sinking output and employment levels.
Mike Cherry, national chair of the FSB, said: “It’s impossible for small business owners to invest for the future when we don’t know what the future holds.
“Lifting productivity among the smaller firms that make-up 99% of our business community is a must. But until we have the political certainty that enables us to take risks and innovate, achieving that goal will remain elusive.”
He also took aim at Conservative leadership rivals Boris Johnson and Jeremy Hunt, who have talked up their willingness to lead Britain out of the EU without a deal.
“We urgently need to see both prime ministerial candidates spell out their plans for supporting small firms and securing a pro-business Brexit – one that encompasses a comprehensive deal and a substantial transition period,” he said.
“Fast and loose talk about accepting a chaotic no-deal Brexit in four months’ time is not helpful.”
He said it was “understandable” lenders were more cautious, suggesting they were continuing to offer credit but were upping premiums to cover perceived increases in risk.