Most small firms expect a downturn

Published on Sunday 16 December 2007 20:40

CONFIDENCE among Scotland's army of small business owners has taken a battering, and the outlook for the new year is far from rosy, according to research by the nation's second-biggest bank.

Bank of Scotland's latest business confidence index, published today, reveals a drop in confidence levels of five points, on a scale of 0 to 100, since April.

More than half of those polled by the bank now expect general economic conditions to worsen over the next 12 months, an increase of 13 percentage points.

But despite the knock, small businesses north of the Border will end the year as the most optimistic in Britain about their prospects.

Today's report is one of the most in-depth studies of its kind and polls 1,000 company directors on a series of key issues, including general economic conditions and customer demand. It provides strong evidence that the combined effects of the credit crunch, high interest rates and a tougher regulatory environment are hitting home.

The survey centres on VAT-registered businesses with annual sales of up to 1 million – the small firms that are the engine room of the Scottish economy.

Ivan Matviak, head of Bank of Scotland Business Banking, said months of economic uncertainty had "clearly filtered down" to the small business community.

He added: "Based upon these findings, we can expect recruitment to be measured and growth to be steady but slowing. However, faced with a growing tax burden and an impenetrable maze of red tape, Scotland's small business owners will have to continue operating in a regulatory and fiscal environment that offers very little support or encouragement."

Although 53 per cent of Scottish small businesses are bracing themselves for tougher economic conditions, the figure is still much lower than the UK-wide average of 63 per cent.

And, while the main Scottish confidence index fell to 46 from 51 in the second quarter, it remains four points ahead of the British average. Businesses in Yorkshire and the West Midlands end the year as the most pessimistic.

Recent evidence has suggested a lag between the slowdown south of the Border and its impact being felt in Scotland. Last week, the Scottish Retail Consortium said the effects of higher mortgage payments and utility and fuel bills were appearing in Scotland a couple of months later than in the rest of the UK.

Scottish Chambers of Commerce director Liz Cameron said today's Bank of Scotland research provided two key insights. She said: "The first is a message to government that liquidity is the key issue for all businesses and therefore uncertainties on funding in the markets leaves businesses nervous. It is therefore more important than ever that the Chancellor batten down his capital gains tax proposals to encourage SME investment instead of deterring it.

"And secondly the robustness of entrepreneurs shines through. Global warnings of recession are based on poor loans practice in the US, not on the stalwart performance of Scottish businesses."

LABOUR MARKET AT SLOWEST FOR THREE YEARS

SCOTLAND'S labour market continued to cool last month, hitting its lowest level of activity for almost three years.

Releasing its regular labour market report, Bank of Scotland said employment and average pay growth had both weakened.

The report's labour market barometer slipped from 58.9 in October to 56.4 in November – its lowest level for 34 months. It was the fifth successive monthly decline, although a figure above 50 still denotes expansion. November's index was marginally below the equivalent measure for the wider UK economy for the second consecutive month.

Bank of Scotland chief economist Martin Ellis noted that growth in job vacancies, employment and pay appeared to have lost some momentum since the summer.

He said: "The recent easing in Scottish labour market conditions from June's peak reflects in part the impact of the interest rate rises from earlier in the year. The labour market remains relatively tight with demand for permanent staff still firm in a number of sectors including engineering and construction, although the rate of deterioration in overall candidate availability has slowed somewhat."

The monthly report, conducted by NTC, is based on the findings of more than 100 recruitment and employment consultants.