More than half of small businesses have seen a decrease in trade over the past two months and one-third of owners are worried they may have to shut the company down if the economy continues to deteriorate, according to a survey by the Federation of Small Businesses (FSB).

Nationally, this would equate to 1.5m small firms ceasing trading, with unemployment soaring as a result.

According to the poll of 4,633 small businesses, almost 40% were less optimistic about the future now than two months ago while one-fifth had been forced to make staff redundant and 32% were actively considering it.

A further third was considering reducing the number of hours their staff worked while 14% had already taken this course of action. And 70% of small firms polled said they had either put a freeze on recruitment or were thinking of doing so.

The FSB has called for a 1% cut in interest rates to help ease the pressure on beleaguered business owners.

"These figures show how serious things have become for small businesses owners," said John Wright, FSB national chairman.

"The first step is for the Bank of England's monetary policy committee to send out the right message this week by cutting interest rates by 1%. This should hopefully encourage banks to lend and secure the future of millions of businesses.

"We don't want to head the way of the early 1990s when 1,000 small businesses a week were collapsing," he added.

"This can be prevented if the banks relent and release money and consumers start to spend a bit more. All this is reliant on that cut in interest rates."

The FSB has already proposed a £1bn small business survival fund be made available to small firms by the government over the next six months.

The government has announced it will secure £4bn from the European Investment Bank but the FSB wants that money to be made available through banks and regional development agencies to help small businesses survive the slowdown.