EDINBURGH, Jan 5 (Reuters) - A cocktail of higher costs, weak domestic growth and lacklustre consumer demand is dampening optimism among British small businesses, with confidence in Scotland dropping sharply to near a 5-year low at the end of 2017, a survey showed on Friday.
The Federation of Small Business said confidence among its members across Britain fell to a four-year low of -2.5 in the last three months of 2017 from +1.1 points in the third quarter and +20.0 in the first three months of the year.
The decline was especially steep in Scotland, where the index fell to -21.4 points in the fourth quarter from -15.3 points in the third, a low only surpassed in the final quarter of 2016.
The impact of Britain's decision to leave the EU has been rippling through the economy in 2017 because of higher inflation after a fall in the value of the pound, and uncertainty among businesses about the implications of Brexit. The FSB surveyed 1,084 members of its members between Nov. 9 and Nov. 25, before Prime Minister Theresa May reached agreement with the EU in December to move on to more detailed trade talks.
"While the swift agreement of a transitional arrangement and an ambitious free trade agreement with the European Union are absolutely critical, it's spiralling costs, weak growth and flagging consumer demand at home that are front of mind for small firms day to day," FSB chairman Mike Cherry said.
In the UK as a whole, a record one in seven small business owners are planning to downsize, close or sell their business over the coming three months, the survey found.
The FSB said three quarters of firms were experiencing a rise in operating costs versus a year ago.
(Reporting by Elisabeth O'Leary, editing by David Milliken)
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