By Jonathan Rimmer
Scottish business confidence has increased for the first time in almost two years, according to a survey.
However, The Federation of Small Businesses (FSB) found that Scotland still lags well behind the rest of the UK and warns the upsurge would be “tricky to sustain”.
The survey also found Scotland was the only area of the UK where more firms expect their performance to get worse than get better.
The latest business confidence index found Scotland’s figure rose from -28.9 points at the end of 2016 to -9.6 in the first three months of this year, while the UK figure climbed from 8.5 points to 20 in the same period.
Respondents reported a small 0.3% increase increase to their workforce, reversing the decline of last quarter by more than 10 percentage points. Additionally, 7.8% of firms predicted they will boost staff numbers in the next three months.
However, despite a majority of Scottish firms predicting sales and turnover growth in 2017, with a 10% rise from the previous quarter, the study found revenues had declined at the fastest rate for four years with 42.3% reporting a fall.
Respondents highlighted the state of the economy as the largest barrier to growth by almost half of respondents (49%), but this has fallen eight percentage points in the last year.
Four in 10 firms cited consumer demand as a brake on growth, while one in four blamed skills shortages. An increasing number of firms are concerned about rising costs for inputs, fuels and utilities.
Andy Willox, FSB’s Scottish policy convener, said: “Scottish business confidence could not fall much further at the end of 2016. A bounce at the start of this year is welcome, but it looks like it will be tricky to sustain given that firms are reporting falling revenues.
“Too few Scottish businesses have faith that our economy is travelling in the right direction. The UK Government needs to convince firms that their plans for Brexit will safeguard their interests. The Scottish Government and our local councils also need to put local growth at the top of their agenda.”
Although the survey contained no specific questions on Brexit, commentators have identified it as a key area of concern for businesses. Scotland and London, which both voted against Brexit, were the only areas of the UK in which small business confidence fell in the fourth quarter of last year.
Kevin Scott, business correspondent at The Herald newspaper, said the rise in confidence was “surprising” given the widespread level of uncertainty.
He said: “There is higher uncertainty up here amongst businesses due to Brexit and so on. I think it is a case where people are still spending money while they can whilst being aware that things will tighten up soon.
“Explaining why Scotland is so behind is complex, though. A lot of it also has to do with the make-up of Scottish society and the UK government’s welfare cuts, which have affected a lot of people in Scotland particularly.
“There is also the uncertainty of whether there will be another independence referendum. Whether people are for it or against it is irrelevant – people don’t know if and when it will happen and that always casts a shadow.”
A total 1,297 FSB members, including 306 in Scotland, responded to the Verve survey which took place between January 30 and February 17.
Picture: David Cameron / Creative Commons