Scots firms 'resilient' as confidence falls in August but remains in positive territory

Business confidence in Scotland fell 11 points in August, although it remaining in positive territory “is evidence of firms’ resilience”, according to the latest Business Barometer from Bank of Scotland Commercial Banking.

The lender, part of Lloyds Banking Group, has revealed that the Scottish headline confidence reading for the month comes in at 5 per cent, on the back of the combination of companies reporting lower confidence in their own business prospects month on month, down 29 points at 3 per cent, and their optimism in the economy dropping five points to -6 per cent. 

Businesses north of the Border identified their top target areas for growth in the next six months as diversifying into new markets and evolving their offering (both 30 per cent), and investing in their teams (27 per cent), with a net balance of 10 per cent of firms saying they expect to increase staff levels over the next year, up 5 points on last month.

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said: “Ongoing pressures around rising costs are clearly continuing to impact Scottish businesses but, despite this month’s dip, that confidence remains in positive territory is evidence of firms’ resilience.

“At times like these, businesses need to keep a close eye on cash flow to help mitigate turbulence in the months ahead. It’s encouraging to see businesses continuing to target new growth opportunities, with nearly a third planning to diversify into new markets.”

The lender says the Business Barometer, which questions 1,200 companies on a monthly basis, provides early signals about economic trends both regionally and nationwide.

UK-wide business confidence fell nine points during August to 16 per cent, the lowest level since March 2021. Firms’ outlook on their future trading prospects fell 32 points to 5 per cent, and their optimism in the wider economy dropped six points to 6 per cent, while the net balance of businesses planning to create new jobs decreased five points to 16 per cent.

'Despite this month’s dip, that confidence remains in positive territory is evidence of firms’ resilience,' says Fraser Sime of Bank of Scotland. Picture: Lisa Ferguson.

Confidence within the retail sector declined the most this month (13 per cent, down 18 points), with the service sector also seeing a significant nine-point decrease (15 per cent).

Paul Gordon, MD for small and medium-sized enterprises and mid-corporates at Lloyds Bank Commercial Banking, said:  “With inflationary pressures growing, businesses will no doubt be looking to their supply networks along with tight control of costs and profit margins where they can.

Agile

“We know that rising costs are already dealing a heavy blow to businesses, but remaining agile to the changing economic environment will be vital for businesses in the months ahead. Firms must keep a tight watch on costs and structure their finances wisely, so they are in the best position possible. Businesses should try to remain flexible, and use the capital and cashflow available to them.”

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “Business confidence declined for a third consecutive month as firms continue to face economic challenges in the period ahead and as inflation concerns intensify.

"Despite edging lower this month, the outlook for both wage and price pressures remains elevated. However, there are some brighter points as the demand for staff remains positive, and firms reported lower concerns about staffing issues and the pandemic.”