SMALL businesses in Scotland have suffered an overall fall in profits and cut employment, and their confidence has turned negative for the first time in three years, a survey has revealed.

The Federation of Small Businesses, publishing the results of its latest quarterly survey today as its members from throughout the UK attend its annual conference in Glasgow, declared that the findings would be “of concern” for Scotland’s policy-makers.

The proportion of small firms in Scotland expecting business conditions to deteriorate in the coming quarter has for the first time in three years exceeded that predicting an improvement.

This has resulted in the FSB’s small business confidence index for Scotland tumbling to -2.0. The index was at +20.4 in the first quarter of last year.

The FSB survey also shows a tumble in the small business confidence reading for the UK as a whole, to a three-year low. However, the UK small business confidence index remained in positive territory, at +8.6.

According to the survey, 64 per cent of Scottish small firms reported that general domestic economic conditions were a barrier to expanding their business. This was up from 49 per cent in the fourth quarter of last year, and the highest since the survey began at the start of 2010.

The FSB noted that the Scottish economy had grown by only 0.1 per cent in both the second and third quarters of last year.

The challenges facing the UK economy as a whole were underlined on Wednesday by the latest projections from the Office for Budget Responsibility, which reduced its growth forecasts for coming years sharply and hiked its projections of public sector net borrowing.

The troubles of the oil and gas sector were cited by the FSB as one likely reason for the weaker position in Scotland.

Colin Borland, head of external affairs for the Federation of Small Businesses in Scotland, also highlighted signs of broader weakness in the services sector north of the Border.

He said: “We see consumer confidence [is] a little bit shaky. If you are in a business that relies on discretionary consumer spend for your customer base, you are going to find things difficult.”

Mr Borland said the FSB in Scotland was seeing signs of challenging conditions in the hospitality, tourism and retail sectors.

He added: “At a time when worries about the domestic economy abound, it is not surprising you are having to work really hard to get customers to part with their money.”

A net balance of eight per cent of small firms in Scotland reduced their headcount in the last quarter, subtracting the percentage increasing staff from that cutting employment. This fall in employment followed three consecutive quarters of growth in Scottish small businesses’ overall staffing levels.

Meanwhile, a balance of 12 per cent of small firms in Scotland reported a drop in gross profits in the last three months.

The survey signals that this fall in profits coincided with a sharp slowing of sales growth to a marginal pace. Only a net two per cent of small firms in Scotland reported sales growth in the last quarter. In the FSB’s previous quarterly survey, a balance of 15 per cent of small businesses north of the Border reported an increase in sales.

On a more positive note, the survey signals plans by small firms in Scotland to increase capital expenditure significantly over the next 12 months.

And Mr Borland noted that the survey showed a continuing easing of credit conditions for small businesses north of the Border.

Andy Willox, the FSB’s Scottish policy convenor, said: “Scottish firms whose prospects are indirectly or directly allied with the state of the oil and gas industry are of course facing gruelling trading conditions.

“But the pressures on the massive services sector are also taking their toll. This could explain why Scottish confidence figures lag behind even the depressed numbers for the UK as a whole.”

First Minister Nicola Sturgeon, Shadow Chancellor John McDonnell, and Scottish Conservative leader Ruth Davidson are due to address 1,200 small business delegates at the FSB’s conference at the Scottish Exhibition and Conference Centre today.