SMALL business confidence has dropped significantly in Scotland in the third quarter of the year to below the UK average, but remains higher than at this stage last year.

The latest snapshot of small enterprise sentiment, from the ­Fed-eration of Small Businesses (FSB), comes as a separate report highlighted another strong performance by the Scottish jobs market in August.

The Bank of Scotland Report on Jobs, which surveys recruitment firms hiring for permanent and temporary roles in Scotland, revealed a further sharp rise in permanent appointments in August, albeit the growth fell back from July's survey record.

The FSB's Voice of Small Business Index found confidence among small businesses fell by 18 points in the last quarter.

The drop means confidence is now below the UK average, which grew in the third quarter. However, the measure was still in positive territory and higher than at the same stage last year.

The report also highlighted growing revenues and falling levels of spare capacity among Scottish small enterprises.

The Scottish Small Business Index fell to +26 points in the third quarter, down 18 points on quarter two but two ahead of last year.

While 45 per cent of Scottish firms expect their prospects to improve over the next three months, 19 per cent anticipate conditions will deteriorate.

At the same time, the UK index rose by 2.3 points in the last quarter, from +39.7 points to +41.

FSB Scottish policy convenor Andy Willox said: "Scottish small business confidence has been on a broadly upward trajectory and we need to remember that we're still in positive territory.

"But a big fall like this highlights why we keep our finger on the pulse of Scottish businesses and make sure our members get a fair deal.

"While Wales and some English regions saw similar dips, we need to understand if this fall is a one-off blip or marks the start of a trend."

The fall in confidence came as fewer Scottish businesses reported running at below capacity. Just under a third (32 per cent) said they were operating with spare capacity in the last quarter, continuing a trend evident throughout the year.

In further positive signs for small enterprises in Scotland, fewer firms reported rising overheads and finding finance unaffordable.

The survey, based on the views of 211 FSB members in Scotland, found fewer businesses signalling plans to recruit this coming quarter compared with the last index.

However, a net +1 per cent of businesses plan to increase their staff in the fourth quarter.

Meanwhile, the Bank of Scotland jobs report registered 67.1 in August - well above the critical 50.0 threshold and the UK equivalent index, but below July's 67.3 record.

The report found that placements by recruitment firms into permanent positions in Scotland grew for the 18th month in a row, with the seasonally adjusted score of 62.5 in above the 55.0 series average. At the same time, the availability of candidates for such roles deteriorated to the greatest extent in series history. The fastest growth in job vacancies in Scotland occurred in nursing, medical and care, followed by IT and computing and then accounts and financial.

Salary inflation for permanent staff eased back on July, but also grew for the 18th month in a row, driven by falling candidate availability and increased competition for staff. With a score of 50 equating to no change on the previous month, the seasonally adjusted score for August was 67.0 - ahead of the UK average of 65.7.