Britain's small businesses are forecasting lower growth this year and have backed away from readily available credit amid economic uncertainty made worse by Brexit.

Their confidence is deteriorating, a survey by the British Business Bank showed, despite an improvement in credit conditions, with asset finance and peer-to-peer lending reaching £16.8bn and £1.3bn respectively in 2016.

Only 37% of small- and medium-sized enterprises (SME) expected to grow in the coming year, down from 56% in 2015, but 71% would rather experience slower growth than have their expansion fuelled by borrowed cash, the survey found.

The number of equity investments in Britain's smaller businesses also dropped by 17% last year, following a record year in 2015.

The report said that the decline in confidence among small businesses was due to 'a combination of factors,' including economic jitters, 'with the EU referendum result last year introducing a further element of uncertainty to SMEs' outlook'.

Businesses are also facing emerging inflationary pressures following the Brexit-induced collapse of the pound, making it harder for them to plan and make secure investment decisions, it said.

British Business Bank chief executive Keith Morgan said: 'Our report shows that smaller businesses still face challenges on their growth journey.

'Despite the improvement in finance markets, many seem to be holding back on their ambition, not simply because they can't access finance but because they're cautious about seeking it in the first place.'

The government-owned bank is hoping to address the problem by raising awareness and confidence about the range of finance options available across the UK and helping small businesses to grow through its support for early-stage and long-term equity programmes.

However, a freedom of information request by the Press Association last autumn showed that nearly a third of public money lent to would-be entrepreneurs to start their own businesses has since become bad debt.

Nearly £72.4m worth of loans distributed through the British Business Bank-backed Start Up Loan scheme was written off or had fallen into debt.

Those figures covered the period between the programme's launch in September 2012 and June 30 2016.

The amount is equivalent to 31% of the £231.8m loaned under the programme since inception and is higher than the £69.7m recouped in loan repayments.

The scheme aims to help people launch small companies by offering personal loans of up to £25,000, which must be used for a business, and was championed by entrepreneur Lord Young as a way of boosting employment across the UK.