NEARLY 70 per cent of small firms expect to introduce a pay freeze in the next three months while 23 per cent will cut wages, according to a new survey.

The Quarterly Small Business Sentiment Survey from the Small Firms Association (SFA) reveals that 30 per cent of companies have been forced to make redundancies while 28 per cent expect to do during the next quarter. In addition, 63 per cent of companies have stopped recruiting.

A total of 475 companies employing more than 8,340 people responded to the survey.

It shows that 64 per cent of firms have experienced a reduction in business activity over the last three months and 26 per cent said they have lost business due to the decline in sterling.

Manufacturing, retail, hotels, catering and leisure experienced the biggest dip in activity, according to the study.

As many as 84 per cent of small firms said they feel less confident about the overall business environment than this time last year. Three-quarters of companies rate the overall business environment as poor and 74 per cent said they expect it to remain so in the next three months.

Sentiment in manufacturing, financial services, hotels and catering, and retail is the worst. Services elsewhere were most optimistic, with for example 46 per cent of education/training firms rating the environment as “good” or “average”.

In the next three months 69 per cent of respondents said they expected a reduction in profitability, while 62 per cent predicted a decline in turnover and 56 per cent a dip in domestic sales.

Some 43 per cent of businesses surveyed believe their customer base will erode during the second quarter, while 25 per cent are predicting their base will expand.

One-third of small firms have seen the availability of working capital evaporate in the last three months, with 19 per cent indicating that availability of investment finance has also fallen.

“These results clearly indicate the deteriorating market conditions small businesses are facing, and the urgent need for the Government to put in place an appropriate response to ensure that small businesses can stabilise and position themselves for growth when the global economic upturn takes place,” SFA director Patricia Callan said.