Scots' firms confidence 'punctured' by factors such as rising costs and lack of staff

Escalating overheads, skills shortages, and fears about the economy “punctured” Scottish business confidence over the last three months, according to new research from the Federation of Small Businesses (FSB).

The organisation’s small business confidence index – which measures companies’ views on whether trading conditions will improve or deteriorate over the coming months – came in at -31.8 points for Scotland for the second quarter of this year. That was down from +14.3 points recorded at the start of the year, and the lowest figure since the last three months of 2020.

Nine in ten firms north of the Border reported an increase in costs in the second quarter of 2022, and the FSB said the average Scottish business-owner is now more pessimistic than the UK average, although the latter’s index has also dropped, falling to -24.7 points and down more than 40 points on the same quarter last year.

The survey encompassed the views of 1,306 owners of small firms and sole traders across the UK in June and July, with about 150 respondents from Scotland.

The report found that access to skilled staff was raised as one of the biggest barriers to growth by two in five respondents in Scotland, only behind concerns about the domestic economy, which were cited by about 60 per cent.

The research also found that three in five Scottish businesses have been running below capacity over the quarter. When asked to identify the source of increasing costs, 73 per cent pointed to fuel, while 67 per cent highlighted utilities.

Andrew McRae, FSB’s policy chair for Scotland, said: “Across Scotland, many independent and local businesses are finding trading conditions merciless.

'Overheads are rising, and every penny spent at the pump or on energy bills is cash that can’t be used elsewhere,' says the FSB (file image). Picture: contributed.

“Overheads are rising, and every penny spent at the pump or on energy bills is cash that can’t be used elsewhere. Businesses in sectors such as retail, tourism and hospitality – especially in rural areas – are finding it difficult to recruit and retain staff.

Deceleration

“These factors mean that far too many businesses say they’re operating at far from their maximum capacity, which in turn slows down their ability to recover from the hits they took over the course of the pandemic.

“Whoever is next to get the keys to 10 Downing Street should prioritise measures to help local and independent firms face these challenges and play their part in economic recovery.”

The FSB also cited a recent report from the Office for National Statistics and Scottish Government finding that while a majority of Scottish businesses have been seeing month-on-month increases to overheads, only about a quarter are passing such jumps onto their customers, and that difficulties in recruiting had been experienced by almost half of businesses north of the Border.

Earlier this year the FSB warned that banks “pulling up the drawbridge” to small firms would further stifle economic growth, after it found that fewer than one in ten such businesses applied for finance in the first three months of this year, the lowest proportion since its quarterly small business index began. Its research also showed that the same percentage said they planned to close, sell up, or downsize over the coming year.