Business confidence rebounds in Scotland but outlook questionable

Confidence levels among Scotland's smaller businesses ticked higher in the first quarter, ending almost two years of decline, research today reveals.

FSB members lunch at the Petit Paris restaurant in the Grassmarket, Edinburgh, ahead of the Small Business Saturday event.

However, the latest confidence index from the Federation of Small Businesses (FSB) also shows that the average Scottish business owner is still much less bullish than their equivalent south of the Border.

The study suggests that the Scots economy – which contracted in the final quarter of 2016 – is unlikely to rebound in the short-term as Scottish firms expecting conditions to improve are still significantly outnumbered by those who expect them to deteriorate.

Andy Willox, the FSB’s Scottish policy convenor, said: “Scottish business confidence couldn’t fall much further at the end of 2016. A bounce at the start of this year is welcome, but looks like it will be tricky to sustain given that firms are reporting falling revenues.”

According to the latest index, small businesses’ revenues declined at the fastest rate for four years. However, a majority of firms do expect sales and turnover growth over the course of 2017.

The research, which was produced for the FSB by the Centre for Economics and Business Research (CEBR), was based on the responses from 1,297 members – 306 of them in Scotland.

Willox added: “While economic silver bullets are in short supply, there’s plenty to be done to help firms drive local growth. For example, if we want to see smaller firms continue to create jobs, an expansion to the employment allowance must be delivered.

“In addition, Scotland’s smaller firms are now seeing overheads rising, while they continue to be owed billions of pounds in big business late payments. Efforts to address this problem seem to have stalled – we need to see them kick-started.”

Today’s report coincides with the publication of the British Chambers of Commerce’s latest quarterly economic survey.

Based on the responses of more than 7,000 businesses in the first quarter, the results show the manufacturing and service sectors reporting solid growth, with both experiencing increases in domestic and export sales since the closing quarter of 2016.

However, businesses warned that the rising cost of overheads and raw materials was presenting a risk to growth in the medium term. Some 76 per cent of manufacturers reported an increase in raw material costs – up from 65 per cent.