Confidence among small firms hit the lowest point in three years during the first quarter of 2016 amid uncertainty over the economic outlook and a host of new challenges such as the National Living Wage and pensions auto-enrolment, according to a new survey.
The Federation of Small Businesses Small Business Index showed confidence declined in every region of the UK between January and March, with the most noticeable drops in London and the East of England.
Scotland and Northern Ireland were the least confident areas overall, with both now in negative territory.
Uncertainty over the prospects for the UK and global economies was partly behind the cooling confidence.
The FSB said there was also a strong indication that confidence has been hit by the prospect of a "raft of new challenges" - including the National Living Wage, pensions auto-enrolment and plans to introduce mandatory quarterly digital tax reporting.
It added that it was particularly concerning to see the first fall in the value of exported goods since 2012, reflecting falling growth rates across both emerging and developed economies.
Financial performance, productivity and hiring intentions were also all weaker year-on-year.
Small firms listed the top five barriers to growth as: the strength of the domestic economy, weak consumer demand, a shortage of skilled staff, the increasing cost of labour, and the burden and complexity of the tax system.
The survey highlighted some positives - a record percentage of smaller businesses accessed credit in the first quarter and, in related news, the alternative finance sector continues to grow. Nearly one in 10 (nine per cent) of firms that applied for credit between January and March applied for peer-to-peer lending or crowdfunding, up from four per cent in Q3 2015.
Sandra Dexter, FSB vice-chairman, said: "Small business confidence has clearly faltered, which is why the welcome small business focus in the Budget is so important. We need a renewed push for growth and productivity - with policy makers delivering a sustained package of support for ambitious small firms.
"The Budget included a number of important measures to help smaller businesses, particularly changes to business rates, which will see many small businesses taken out of paying rates altogether. Delivering on tax simplification measures will be vital - as will be pressing ahead with new investment in much needed infrastructure. Taken together these measures should help to boost confidence and help small firms to grow and succeed.
"The ongoing improvements to small business finance demonstrate how a sustained and focused approach to supporting smaller firms can really pay off. We now want to see a similar focus and long-term drive to simplify the tax system, building on positive announcements in the Budget and the work of the Office for Tax Simplification. By doing this, we can boost small business confidence levels and support long-term, sustainable growth."