Rising employment costs have cut morale among SMEs, according to a poll of more than 1,000 business owners.
The Federation of Small Businesses said confidence among small business owners fell back into negative territory in the second quarter of the year, largely due to higher wages.
Speaking in The Times, the FSB said soaring employment costs were taking their toll on small businesses owners.
They were the most commonly cited cause driving overall cost increases compared with a year ago, hitting a record.
Other growth barriers included weaker consumer demand and tax pressures.
Tina McKenzie, policy chair at the FSB, warned that small businesses were “looking with trepidation at the government’s forthcoming plans to change employment, which could both increase risk around small businesses employing people, and the costs when they do.”
Labour is planning an overhaul of workers’ rights, which could increase expenses for employers.