Only 36% of UK SMEs expected to grow in the first quarter of 2016, according to a survey by Bibby Financial Services (BFS).

BFS’ latest SME Confidence Tracker showed that growth expectations plummeted by 10% from Q3 to Q4 2015 and 28% from the Q1 2014 peak.

In addition, almost one in five (17%) small businesses surveyed expected sales to decline in the first three months of 2016.

Scotland appeared to be the worst hit UK region, with only 29% of Scottish business owners and decision-makers expecting sales to increase, compared to the national average of 36%.

David Postings, global chief executive of BFS, said: "Recent ONS data shows growth in the UK economy slowed in 2015, with third quarter growth cut from 0.5% to 0.4%. Our latest SME Confidence Tracker reflects this dampened outlook amongst the country’s small businesses."

The survey indicated that SMEs will enter 2016 with "muted" investment plans, with over a third (35%) saying that they do not intend to invest over the next three months.

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Top of the list of reasons for holding off on future investment is the uncertain economic environment in the UK. Almost a third (29%) of small business owners and decision-makers cite this as a barrier to capital expenditure, up from 21% in Q3.

Postings said: "SME confidence is plummeting, while investment is only being made if it is essential. Concerns over the uncertain UK economic environment are strengthening, suggesting that SMEs believe the recovery is losing steam."

Where businesses are planning to invest over the next quarter, their reasons for investment are focused on maintaining "business as usual" activities, such as replacing outdated equipment and keeping ahead of competitors.

Despite investment in existing and new staff topping the list of planned investments, only one in ten SMEs say that "ensuring the business attracts and retains the best talent" is a primary reason to invest.

Postings said: "The Q4 Tracker presents a gloomier outlook than seen before. While in Quarter 3, small business owners were sensing dark clouds on the horizon, they now appear to be preparing for the storm.

"Government and policymakers would be wise to heed the reality of SME experiences and hold off on any major changes to monetary policy. Small businesses need certainty in the UK economy and as much ‘forward guidance’ as possible, if they are to lift themselves out of this downward spiral."

Over a thousand SMEs took part in the survey which was conducted in November 2015.