Scottish business confidence plummets amid growing cost challenges

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Business confidence in Scotland fell 18 points in March to 17%, with Scottish businesses reporting lower confidence in their own business prospects month-on-month, down 24 points to 18% .

Combined with their optimism about the economy – down 12 points to 16% – this gives an overall confidence reading of 17%.

Despite declining confidence, Scottish businesses have identified a range of growth opportunities for the next six months, including investing in their teams (39%), diversifying into new markets (30%) and scaling up their offer, such as the introduction of new products or services. (28%).

Bank of Scotland Commercial Bank Business barometer surveys 1,200 companies every month. The overall “balance” of opinion weighs the percentage of companies with a positive outlook versus those with a negative outlook.

A net 9% of businesses in Scotland expect to increase headcount over the next year, down 22 points from last month.

Overall, British business confidence fell 11 points in March, from 44% to 33%. Companies’ outlook on their future business prospects (down 45% to 34%) and optimism in the economy (down 43% to 32%) also fell 11 points from February.

The net balance of companies planning to create new jobs fell slightly, by 6 points to 32%.

Fraser Sime, Regional Director for Scotland at Bank of Scotland Commercial Banking, said: “The current economic climate is proving understandably challenging for Scottish businesses, with rising energy prices, inflation and the ongoing war in Ukraine combining to create myriad headwinds.

“The country’s businesses have proven their resilience over the past two years and will be prepared for the months ahead.”

From an industry perspective, the war in Ukraine appears to have had the greatest impact on manufacturing and retail businesses.

Both sectors saw declines in confidence of 19% from February highs – to 35% and 28% respectively. From a manufacturing perspective, confidence levels are now at their lowest since last summer, while retail trade has fallen to its lowest level in a year.

In the other sectors, services fell by six points (32%) while construction fell by eight points to 43%, but remained higher than at the start of the year.

Paul Gordon, Managing Director of SMEs and Mid-Sized Companies at Lloyds Bank Commercial Banking, said: “There is no doubt that businesses across all sectors are being affected by the current geopolitical and financial situations – those which were beginning to see The Green shoots now have to reconsider their approach and adapt to a new set of challenges.

“It remains to be seen whether the changes to the National Insurance threshold and business rates for the tourism, hospitality and leisure sectors announced by the Chancellor will help these consumer-facing businesses and it will be interesting to hear see how they respond to next month’s survey.”

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