Small firms more hopeful

The FSB's latest Small Business Index (SBI) for Scotland, which measures confidence and is weighted according to the strength of responses from firms about if they expect prospects to improve or deteriorate over the coming three months, rose to plus-9 in the second quarter from minus-1 in the preceding three months. The latest reading matched that for the first three months of 2012, and was five points ahead of the SBI level a year ago.

But it was well adrift of the UK average reading of plus-15.9 in the latest quarter. This UK reading was up from plus-6.3 in the opening quarter of 2013.

Colin Borland, head of external affairs for the FSB in Scotland, believed the weaker confidence reading in Scotland might reflect a higher proportion of firms in the hospitality and tourism sectors.

Asked about the weaker confidence reading in Scotland, Mr Borland replied: "I don't know if it is to do with the sort of sectors that disproportionately dominate our economy and the kind of issues that are there. I am thinking particularly about hospitality and aspects of tourism. That is obviously a sector that has very big gas and electricity bills, and that (utility costs) is an area that is coming through as a brake on growth."

He also highlighted hospitality and tourism firms' dependence on consumer spending, in the current tough economic environment.

Mr Borland, however, welcomed the increase in confidence reported by small firms in Scotland.

He said: "It is quite refreshing because we seem to have been reporting either bad results or looking very hard for positive things. This does look encouraging."

Mr Borland added: "Obviously we are coming from a very difficult place – there is no point pretending otherwise – and it is all relative. But I would rather it was better this quarter than the last quarter and I am glad the year-on-year figures are better.

"There are a few things coming out now which seem to be painting a more positive picture. We just need to make sure we don't let it slip through our fingers."

Subtracting the percentage of small firms in Scotland expecting to reduce employment in the coming three months from that forecasting an increase, a net 4% predicted a rise in headcount.

The FSB survey found 74% of small firms in Scotland held employment steady in the second quarter, with the remainder split equally between increasing and reducing the workforce.

A net 10% of Scottish small businesses predicted a rise in revenues in the coming three months, after a flat second quarter.

One in four Scottish small firms said they were experiencing "significant" increases in costs.

A year earlier, one in five small firms north of the Border had reported a significant rise in costs.

Reflecting higher costs, a net 17% of Scottish small firms suffered a fall in profits in the second quarter. This was a slight improvement on a balance of 22% reporting a slide in profits in the first quarter.

A net 5% of Scottish small businesses forecast a slide in profits in the coming three months.

In spite of the rise in confidence among small firms in Scotland, and signs of improvement in the affordability and availability of credit, investment intentions among these businesses have fallen in the second quarter.

Only 8.1% of Scottish small firms expected to raise capital investment over the next 12 months, down from 10% in the survey for the second quarter of 2012.

Asked if he would like to have seen better investment intentions, Mr Borland replied: "Yes. That is disappointing...With a still tough but slightly loosening credit market, you would think more people would be looking at making a capital investment this year."

He added: "The confidence is good, hiring intentions are good, the capital investment thing is a concern, as is the disproportionate effect on Scottish businesses of the rise in fuel and electricity prices."

The latest survey was conducted between May 7 and 21, and attracted responses from 261 FSB member firms in Scotland.