The Federation of Small Businesses said more firms in the South-East were working below capacity than anywhere else across the country, suggesting the economy was still some way from a full-speed recovery.
A survey of 1,200 of its members showed that just 4% throughout Britain believed prospects would improve by the end of the summer.
Two thirds of those questioned were operating below capacity, especially those in the service sector.
Confidence among small businesses has faltered each month since March, with revenue growth remaining weak.
FSB chairman John Walker said: “The consensus view from small firms is that the recovery is far from secure and there are significant risks to business growth in the future. With this is mind, as well as the fact that almost 70% of businesses report working under capacity, we encourage the Government to support small businesses to grow and expand.
“With small firms in the South-East most likely to be working below capacity, this shows how wrong the Government is to not include this vital region, as well as the East and London, in its proposals for a National Insurance holiday for start-up businesses. While we support the policy we believe that it should be extended to be UK-wide and be available for existing businesses too.
“With 600,000 public sector jobs expected to be lost, stimulating private sector job creation, especially in small firms, will be vital to rebalancing the economy.”