Britain's biggest business representation group – the Federation of Small Businesses (FSB) – has revealed a marked fall in levels of business confidence among South West SMEs.

Data from FSB's latest quarterly 'Small Business Index' shows confidence levels among smaller firms in the South West has fallen by 20 per cent since the summer amid concerns over rising costs, labour shortages and sluggish consumer demand.

The South West has also gone from being one of the most optimistic areas for SMEs earlier in the year to being below the national average.

The regional respondents to the FSB poll said that the general economic conditions in the UK and getting appropriately skilled staff were the greatest perceived barriers to growth over the coming 12 months and more than one in ten South West businesses have said they intend to downsize, sell or close the business in the next year.

It is not all bad news, however. Compared to the same period last year confidence has improved greatly, net revenue figures among regional businesses are continuing to rise and FSB members are still more likely to recruit new staff than reduce their staffing numbers.

Craig Carey-Clinch, the FSB's South West, Regional Policy Unit Representative said the figures reflect what is a very unclear picture for the region's thousands of small businesses.

"As we enter what many businesses are telling us could be an uncertain and unpredictable winter, it is understandable to see that confidence among our South West FSB members has fallen.

"These figures show that concerns about increasing business and utility costs, shortages of both staff and materials, uncertain consumer demand and the fear of further cost rises are now starting to dent some of the positive feelings we saw in the region earlier in the year.

"The FSB will continue to stress the importance of supporting our small businesses through these next potentially challenging months so we can play our part in supporting the economic recovery which the South West SME community will strive to lead."

The regional results were part of a nationwide FSB poll where the overall UK confidence levels were also shown as falling and FSB Chairman Mike Cherry said they reflect the feeling that businesses are struggling to cope with increased tax and utility bills. He said: "On every front – from inputs, to energy, to recruitment, to shipping, to tax – small businesses are up against it."