SMALL business confidence bounced back to pre-referendum levels in the last quarter of 2016, according to the Federation of Small Businesses (FSB).

Its Small Business Index (SBI) shows confidence now stands at +8.5, up from -2.9 in the previous quarter and almost the same as the +8.6 at the start of 2016.

Ted Salmon, FSB North East regional chairman, said: "We are delighted to see confidence bounce back at the end of 2016, effectively wiping out the fall we saw in the run-up to the EU referendum and its immediate fallout.

"The current economic outlook seems brighter, and UK small businesses are ambitious and want to make the most of it. Small exporters continue their strong rise, as UK goods and services become more competitive overseas and small businesses go out to find new markets and new customers."

The FSB said the Bank of England keeps a close watch on spare capacity and for Q4, the number of businesses operating below capacity fell to 44.2 per cent – supporting the case for leaving interest rates on hold.

Also, for the second quarter in a row, job creation was up and nearly ten per cent of small businesses expect to recruit over the next three months.

However, the FSB said that although confidence is up and there are areas of strong performance, most small firms are not seeing this feeding through to profits.

Profitability dropped for the second quarter in a row and investment plans are down on last year as costs of doing business continue to rise.

Mr Salmon said: "Despite the overall positive picture, our members still face many challenges as rising costs squeeze margins even further. The falling pound is driving up the price of imports and rising oil prices are being reflected in higher fuel costs."