SMALL business confidence levels have increased in Scotland for the first time in 18 months but remain weak and trail well behind the rest of the UK a closely watched survey has found.
The latest confidence index published by the Federation of Small Businesses today points to a recovery in sentiment from the lows recorded late last year amid uncertainty about the impact of the Brexit vote.
However, the findings are unlikely to allay fears about the prospects for a sector which is a key driver of growth in the Scottish economy.
Scotland was the only area of the UK in which firms expecting their performance to improve were outnumbered by those braced for trading to worsen.
Many firms saw sales fall in the first quarter.
Colin Borland, head of external affairs for the FSB in Scotland, said the findings suggest the downturn in the oil and gas sector is continuing to take a heavy toll on small firms in Scotland.
“What happened to the oil price has obviously had an impact and not just in the North East but throughout the economy. We saw that reflected last week in the poor GDP (Gross Domestic Product) figures,” said Mr Borland. “It’s feeding though into the service sector and all parts of the country.”
Official figures published last week showed output declined by 0.2 per cent in Scotland in the fourth quarter of 2016 although it increased by 0.7 per cent in the UK as a whole.
Mr Borland said the relatively gloomy outlook in Scotland may also reflect the fact that many FSB members in the country are active in sectors that are dependent on discretionary spending by consumers, such as retail and leisure. Caution among consumers about the prospects for jobs and wages may be impacting on trading.
The survey findings also highlight the effect of increases in the cost of key inputs such as fuel. These have been partly driven by the fall in the value of the pound since the Brexit vote in June.
Mr Borland said rises in fuel and energy costs impact especially heavily on firms in Scotland, due to the geography and climate of the country.
The fall in the pound does not appear to have helped small exporters in Scotland. More firms recorded a fall in overseas sales in the latest quarter than enjoyed an increase. Respondents expect only a marginal increase in exports in the current quarter.
By contrast the FSB found the balance of UK firms reporting growth in exports reached a record high of around 16 per cent. A record balance of 30 per cent expect exports to rise in the current quarter.
The survey did not include any questions concerning Brexit.
Scotland and London, which both voted against Brexit, were the only areas of the UK in which confidence among small businesses fell in the fourth quarter of 2016.
The FSB found confidence increased markedly in London in the first quarter, pushing the index reading well into positive territory.
The share of firms perceiving staff skills to be a barrier to growth fell in Scotland in the first quarter of 2017 compared with the same period in 2016.
The state of the domestic economy was perceived as the biggest barrier to growth in Scotland and in the UK in both periods.
But sector players on both sides of the Border expect to create jobs overall in the current quarter.
The FSB’s Scottish policy convener Andy Willox said: “Too few Scottish businesses have faith that our economy is travelling in the right direction. The UK Government needs to convince firms that their plans for Brexit will safeguard their interests. The Scottish Government and our local councils also need to put local growth at the top of their agenda.”
The Scottish Small Business Index reading for the first quarter was -9.6, meaning more firms expected conditions to worsen than improve. The index hit a six-year low of -28.9 at the end of 2016.
The UK reading increased to a five-quarter high of 20 in the latest quarter, from 8.5 in the preceding three months.
Some 43.2 per cent of firms in Scotland reported a fall in revenues in the first quarter of 2017. Only 32.2 per cent grew revenues.
A net balance of 7.8 per cent of firms in Scotland project employment growth in the second quarter, against 11.3 per cent in the UK.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here