SMALL businesses in Scotland have suffered a dramatic loss of confidence amid the challenges posed by the Brexit vote and consumer caution a closely watched survey has found.
The reading on the quarterly confidence index compiled by the Federation of Small Businesses fell close to record lows in the latest quarter.
With many business owners planning to head for the exit, the findings of the survey have worrying implications for growth and jobs
The federation found widespread concern among businesses about the prospects for the economy as firms face a long wait to see how Brexit will impact on them.
READ MORE: Ministers must help businesses and consumers keep spending
The fall out from the vote is already causing complications following the fall in the pound in the wake of the ballot.
This has stoked inflation putting pressure on consumer spending at a time when many people are finding prices are rising faster than their wages.
The squeeze on profit margins intensified in the final quarter of 2017 as firms faced steep increases in the cost of essentials such as fuel.
The federation’s chairman Mike Cherry noted: “While the swift agreement of a transitional arrangement and an ambitious free trade agreement with the EU are absolutely critical, it’s spiralling costs, weak growth and flagging consumer demand at home that are front of mind for small firms day to day.”
Scottish policy convenor Alex Willox noted Scottish and UK small business confidence slipped to near record lows in the latest quarter. He cited bruising trading conditions, concerns regarding Brexit and worries about local economies.
However, Mr Willox noted the figures showed a long-term optimism gap between a typical firm in Scotland and their counterparts elsewhere in the UK.
READ MORE: Ministers must help businesses and consumers keep spending
Closing the gap must be a key priority for the Scottish Government given predictions the country faces a period of sluggish economic growth.
Regarding Scotland, FSB cautioned: “Dealing with the broader economic impact of the low oil price, high inflation and weak domestic demand, growth could be expected to remain below the UK average for some time.”
The Scottish Government defended its record as a supporter of small businesses.
"Brexit is the biggest threat facing the Scottish economy and it is absolutely vital that the UK Government commits to remaining in the EU single market and the customs union to protect jobs and investment in Scotland,” said a Scottish Government spokesperson.
"Our investment on economic development dwarfs that of the UK Government - with spending per head now more than £100 higher in comparison.”
The government will continue to fund what it regards as the most competitive business rates relief package in the UK worth around £720 million next year. It is maintaining the expanded Small Business Bonus Scheme which will remove the rates burden for 100,000 premises.
The survey findings provide clear indications firms are finding the going tougher in Scotland than other parts of the UK.
The confidence index fell to -21.4 in Scotland in the latest quarter, from -15.3 in the preceding three months. The reading was the second lowest in the five years the survey has been running, behind the final quarter of 2016.
The UK reading fell to -2.5 from 1.1.
While confidence fell in all areas other than London in the latest quarter, the reading in Scotland was lower than in any other part of the UK.
A balance of 17.5 per cent more firms saw profits fall in the latest quarter in Scotland than recorded an increase, against 8.9 per cent in the UK.
READ MORE: Ministers must help businesses and consumers keep spending
A balance of seven per cent of respondents in Scotland expect to reduce employee numbers in the coming three months.
By contrast, a balance of 2.9 per cent of employers in the UK expect to boost numbers.
The FSB found 23 per cent of business owners in Scotland were planning to downsize, sell or close their firms in the next 12 months. That compared with a record 15 per cent in the UK.
A balance of 15.2 per cent of firms in Scotland expect to increase investment in the next year, against 29.9 per cent in the UK.
The FSB said exporters had been performing well in the UK.
It said the survey was completed in November with 106 Scottish responses and 1084 across the UK.
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