Surprise rebound in confidence for smaller Scots firms

'Its a refreshing change to see Scotland bucking the trend in a positive way,' says Andrew McRae of the Federation of Small Businesses. Picture: Contributed

The Federation of Small Businesses (FSB)’s latest quarterly survey found that Scottish business confidence moved into the black for the first time in a year with good Easter weather and the extension to the Brexit deadline among the factors cited.

In the second quarter of 2019, the FSB’s Scottish small business index increased by a record 37.5 points to +3.3. It represents only the second time since 2015 that business optimism in Scotland has been in positive territory and comes after two quarters of record-breaking lows.

The latest figures also show that Scotland has outperformed the rest of the UK, where confidence levels fell further during the quarter.

Although the Scottish figures show that slightly more businesses are still reducing staff numbers rather than hiring, recruitment intentions for the next quarter are firming up, with 15.8 per cent expecting to expand their workforce.

Despite the more positive outlook, businesses are still facing a number of challenges. Just over 70 per cent of respondents said that the cost of running their business is increasing, blamed on rising utility and employment burdens.

Four in ten firms also report that profit levels are down this quarter, compared to the UK figure of 42 per cent.

Andrew McRae, FSB’s Scotland policy chair, said: “After five years lagging behind the UK average – and some record low readings over the last six months – it’s a refreshing change to see Scotland bucking the trend in a positive way.

“It’s hard to point to a single factor behind this. The mini heatwave around Easter has reportedly given some important sectors a bit of a bounce. Equally, the Brexit extension in April let businesses breathe a sigh of relief that the threat of crashing out of the EU without a deal had receded for the immediate future.”

However, McRae warned that confidence can “fall back just as quickly as it has risen”.

“We need to use this narrowing window of opportunity to get Scotland’s businesses some clarity on what the post-Brexit trading environment is going to look like.”

McRae also said the rising costs facing businesses were also a significant threat.

“Costs are still on the up – and if revenues don’t keep pace, any remaining profit will be squeezed from the business.

“At the same time, there are a raft of new regulations on the horizon – on everything from compulsory bottle deposit schemes to workplace parking levies to low emissions zones. If these aren’t implemented deftly, they will present unnecessary obstacles to small businesses.”

The UK-wide figures were the fourth straight quarter in which the index has been below zero, a first in its near ten-year history.

The FSB surveyed 982 small businesses for the report, including 101 from Scotland.