SCOTLAND and London, which both voted against Brexit, were the only areas of the UK in which confidence among small businesses fell in the latest quarter.
The sharp drop in confidence among small firms north of the Border, revealed in a survey published today by the Federation of Small Businesses (FSB), contrasts with a rise in the UK as a whole.
Colin Borland, head of external affairs for the FSB in Scotland, highlighted the possibility that Brexit was dragging down confidence north of the Border.
He said: “Of course correlation is not causation, but it is interesting that the other area of the UK where confidence has dipped is London. So perhaps some of this reflects greater worries from Scottish business owners about the impact of leaving the EU on their operations. Or perhaps, if their customers take a dim view of the prospect of Brexit and are thinking twice before spending, they are seeing trade subdued.
“We won’t have a clearer idea of whether Scottish members have a markedly different take on Brexit until we’ve finished analysing the in-depth data we’re continuing to collect from them.”
Mr Borland also underlined the continuing impact of the oil and gas sector’s woes, arising from weak crude prices in recent years, on the broader Scottish economy.
And he flagged the impact on small businesses in Scotland of higher input costs arising from the pound’s tumble in the wake of the UK electorate’s vote last June to leave the European Union. Sterling weakness has pushed up the cost of imports and fuel, with the Office for National Statistics having cited the impact on petrol and diesel prices.
Mr Borland said: “The…issues that were suppressing Scottish confidence way before the EU referendum haven’t gone away. We continue to see the effects from the fall in the oil price spread across the country and the economy. And we still see upward pressure on wages, and other input costs creeping up.”
He highlighted the fact that small businesses in Scotland tended to be more affected than those in other parts of the UK by higher fuel costs.
Mr Borland said: “If fuel prices are going up, that has a disproportionate impact on Scotland for reasons of geography.”
The FSB’s latest survey shows the Scottish small business confidence index fell to -28.9 in the fourth quarter, from -18.8 in the preceding three months. This means the Scottish confidence reading has now fallen in six consecutive quarters.
In contrast, the UK small business confidence index rose to +8.5 in the fourth quarter, from -2.9 in the preceding three months. In London, the small business confidence index came in at -2 in the fourth quarter.
The FSB did not include a small business confidence reading for Northern Ireland, which also voted against Brexit, in the breakdown of findings from the UK’s nations and regions. It cited a low volume of responses from Northern Ireland.
Mr Borland noted, while the Scottish confidence reading had tended to track below that for the UK as a whole, what was different this time was that the indices had moved in opposite directions.
He said: “While we have been less confident than them [in the past], we have always followed the trend. What is different here is that, in the final quarter of 2016, there was this divergence. The rest of the UK has bounced back to pre-[EU] referendum levels and Scotland has taken a dip. There is a lot in the mix. It could be down to the differing views and differing mood music around Brexit, and the figures for London might lend some weight to that. There are [also] a lot of other things that haven’t gone away.”
The survey shows 46 per cent of small businesses in Scotland experienced a fall in profits in the fourth quarter, while only 27 per cent achieved a rise.
The FSB notes the net 19 per cent of small businesses north of the Border reporting a fall in profits is a much weaker outturn than the balance of three per cent in the UK as a whole experiencing a decline.
And it highlights the fact this is the most negative response for profit performance from small businesses in Scotland since the first quarter of 2013. Scottish small businesses’ profit expectations for the current quarter are also negative.
A net 11.1 per cent of small businesses in Scotland reduced headcount in the fourth quarter. And a balance of 7.6 per cent forecast a reduction in employee numbers during the current quarter.
The domestic economy was cited as the main perceived barrier to growth by 55 per cent of Scottish small businesses.
Looking ahead, and citing the “far more pessimistic outlook” from small businesses north of the Border in terms of confidence, the FSB says: “The Scottish economy may be in for a challenging 2017. A general lack of certainty, both politically and with regards to the future economic environment, is also hampering firms.
“This, combined with on-the-ground conditions and weak indicators, means it may take time for small businesses in Scotland to recover their confidence. The weak pound is likely to soften consumer demand as prices for imports rise, but it may also boost exports and encourage tourism to Scotland from overseas.”
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