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Scottish business confidence steady but among lowest in UK

Scottish businesses have reported the second lowest confidence rates in the country amid market uncertainty and concern over weak domestic demand, according to the latest Business in Britain report from Bank of Scotland.  

Business confidence in Scotland – calculated as an average of respondents’ expected sales, orders and profits over the next six months – was down two points at 17 per cent compared with 19 per cent in July 2017, making it the second least confident region in the UK after Yorkshire and Humber. 

However the net balance of firms looking to grow investment in the next six months remained stable at two per cent, the same level as in July 2017 while the share of firms anticipating stronger total exports remained positive at 17 per cent. 

The twice yearly Business in Britain report, now in its 26th year, gathers the views of more than 1,500 UK companies, predominantly small to medium sized businesses, and tracks a range of performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative. 

Recruitment activity expected to slow

A net balance of seven per cent of businesses expect staff numbers to fall over the next six months, compared with a net balance of eight per cent that expected to hire more staff in July 2017. 

The share of Scottish firms that continue to report difficulties hiring skilled labour has fallen by two points but remains relatively high at 43 per cent. 

Meanwhile, the number of firms expecting to increase wages decreased by six points to 15 per cent, suggesting that companies are taking an increasingly cautious approach to pay. 

Mixed picture across the UK

Business confidence in Scotland was the second lowest across the UK (17 per cent), with the highest being in the North East (38 per cent) and North West (31 per cent). The lowest was in Yorkshire and the Humber (15 per cent).

Confidence Index

 

 

 

Region

Jan 2018 (%)

July 2017 (%)

Change (July – Jan)

North East

38

33

+5pts

North West

31

26

+5pts

West Midlands

28

22

+6pts

London

25

20

+5pts

East Midlands

24

24

-

South East

24

28

-4pts

Wales

20

34

-14pts

South West

19

27

-8pts

East of England

18

22

-4pts

Scotland

17

19

-2pts

Yorkshire & Humber

15

23

-8pts

Jane Clark-Hutchison, Regional Director, Bank of Scotland said: “It’s disappointing to see Scottish businesses, towards the bottom of the confidence index but perhaps not unsurprising given the backdrop of economic uncertainty and concern over weak domestic demand. 

“While confidence has dropped marginally from July, it’s still broadly in line with the sentiment felt this time last year. Encouragingly, Scottish firms remain stoic with their investment and export plans. 

“Ultimately, uncertainty is at the front of Scottish business’ minds and we will need to see a shift to return to a position of growth. As Brexit negotiations continue to the next phase, we will hopefully see greater clarity which will help businesses  to plan carefully and be flexible to see through the next six months and beyond.” 

Risks ahead

Economic uncertainty is now the single greatest risk to firms in Scotland in the next six months, cited by 27 per cent of firms in the region, up from 22 per cent in July. 

The proportion of Scottish firms reporting weaker UK demand as their greatest risk increased to 18 per cent from 14 per cent. 

Uncertainty around Brexit negotiations continue

The share of Scottish firms that are confident about business interests being protected or promoted in Brexit negotiations fell to 38 per cent from 49 per cent previously, and is now only marginally higher than the share of businesses expressing a lack of confidence, which increased to 35 per cent from 25 per cent. When asked about the impact of a ‘no trade’ agreement with the EU on their business, overall, 14 per cent of Scottish firms said that ‘no deal’ would be positive and 46 per cent said that it would be negative.

Confidence begins to grow in sectors which rely on domestic demand

Nationally, business confidence was highest in manufacturing, while sectors more dependent on domestic demand, such as hospitality, leisure, and retail and wholesale also recorded gains. 

The only sector that reported a significant fall was construction, in which confidence dropped from 31 per cent to 14 per cent.

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