Small firms are reporting a decline in profits as the global credit crunch tightens its grip on the UK economy, new research suggests.

In a report conducted by the Small Business Research Trust (SBRT), the volume of smaller enterprises that recorded a dip in sales increased from 26% to 33% for the first quarter of 2008.

Investment growth also fell when compared with data collated from the fourth quarter of 2007. The net balance decreased from 8% to -5% for micro businesses, whilst small firms saw a fall from 8% to 2%. Medium-sized enterprises reported the most significant decline, from 27% to 9%. 

‘There is now little doubt that, for the UK’s small businesses, trading activities have gone into decline from the stable or gradual growth position over the last year,’ said Brian Wolfe, Chairman of the SBRT.

The survey, which was carried out in conjunction with the Forum of Private Business (FPB), also revealed that those questioned are now more pessimistic about future growth activity in the current financial climate.

‘Expectations have weakened considerably since the last quarter; each measure has moved into a negative balance and all sizes of businesses, in all regions of the country, now expect a much lower performance for 2008,’ said the FPB’s Chief Executive, Phil Orford.