The survey of more than 1,500 businesses found that 58% expect to grow in the next 12 months compared to 65% a year ago.
In addition, 22% of firms plan to invest this quarter, compared to 26% a year ago.
The FSB attributes measures announced in the Summer Budget such as changes to dividends tax changes and the forthcoming introduction of the national living wage as the reasons behind the slowdown.
However, there was some positive news:
- 62% of businesses who applied for a bank loan were successful compared to 50% a year ago
- small business productivity was 3% this quarter, compared with 0.6% 12 months ago.
John Allan, national chairman of the FSB, said:
“Confidence has cooled as businesses face a number of challenges. Changes to tax treatment on dividends will affect many small business owners with modest incomes, while small employers also face steep increases in the national living wage just as they are preparing to bear the cost of pensions auto-enrolment.
“The reaction to these changes is reflected in the evidence we present today, which shows confidence levels amongst members cooling markedly.”