Sep 19, 7:04 PM EDT

A lobby group for small businesses in Britain is warning that rising prices and a stuttering domestic economy are driving confidence levels down and prompting more and more entrepreneurs to "downsize, close or sell their firms."


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LONDON (AP) -- Britain's small businesses are more pessimistic about the future than at any time since the immediate aftermath of last year's Brexit vote as higher prices and a stuttering domestic economy weigh on the confidence of firms that don't export, a lobby group said Wednesday.

In a quarterly survey of its members, the Federation of Small Businesses warned that optimism among its members has tumbled amid "unprecedented political and economic uncertainty." Its main Small Business Index fell to 1 point in the third quarter of 2017 from 15 in the second. The index is on a scale of -100 to 100.

It's now not far off the -3 level seen in the summer of 2016 after Britain voted to leave the European Union.

"Rising inflationary pressure and a weakening domestic economy are the twin drivers of plummeting confidence among small firms and consumers alike," said Mike Cherry, the organization's national chairman.

Inflation in Britain has ratcheted higher over the past year largely because of the 15 percent or so fall in the pound in the wake of the Brexit vote. That raised the cost of imported goods like food and energy and the headline rate of inflation is now 2.9 percent.

Higher inflation is also one of the main reasons why the British economy is growing by less than its peers in the Group of Seven industrial democracies, as higher prices have prompted consumers to hold back spending. Uncertainty over how Brexit will pan out is also hobbling business investment. The British government formally started the two-year exit discussions in March but there's been little headway on what the country's post-Brexit relationship with the EU will look like.

The survey's headline figure, however, masks some upbeat views among exporters, who account for 22 percent of small businesses, according to the organization.

"It's encouraging to see that small firms which export are still bullish about the future," Cherry said. "While growth falters here in the U.K., it's accelerating across the eurozone and U.S."

The lobby group is urging the government to back a transition period of at least three years after Britain formally leaves the EU in March 2019 so that its members don't face a cliff-edge scenario, whereby the country crashes out of the bloc with no post-Brexit deal.

The survey was conducted in July and is based on responses from 1,230 members

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