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20 September 2017

Scottish small business confidence slides as costs rise

Reference number: SPUR2009

- Plummeting optimism seen across UK 

Scottish small business confidence fell steeply in the third quarter of 2017, according to a new Federation of Small Businesses’ (FSB) report. The FSB’s Scottish Small Business Confidence Index fell to -15.2 points, from -3.8 points in the previous quarter.

The equivalent UK figure fell even more sharply over the last three months, dropping 13.9 points to +1 point. However the average Scottish firm is still much less optimistic that its UK equivalent, the business sentiment metric shows.  

FSB Scottish policy convenor Andy Willox said: “Businesses in Scotland have been pessimistic about prospects for the last seven quarters. While we saw a slight uptick earlier this year, this quarter business confidence in Scotland, and across the UK, has taken a hit.

“Rising inflationary pressure and a weakening domestic economy are the twin drivers of plummeting confidence among UK businesses. Scottish small firms will be looking to the Chancellor to extend a lifeline at the Budget. In such a difficult trading environment, new tax grabs and loss of reliefs for entrepreneurs will exacerbate existing challenges.”

According to the study, profit margins continue to be squeezed with a net balance of 7 per cent of Scottish smaller firms reporting a fall in gross profits. Further, an increased share of firms now warn input costs – such as the cost of raw materials – are a barrier to business growth.

Andy Willox said: “The depreciation of Sterling is still having a big impact on those firms which import goods or services, or who are part of international supply chains.”

The report also highlights that although still lagging behind the rest of the UK, Scottish investment intentions have strengthened. A net balance of 7 per cent of small businesses in Scotland plan to increase their investment in the next quarter, up from 6 per cent earlier in the year, but lower than the equivalent figure of 14 per cent.

Andy Willox said: “The Scottish Government has done the right thing by heeding FSB’s call for an investment rates relief. Giving growing firms time to recoup their money before being hit with a bigger bill will go some way to helping Scottish investment intentions catch up with those south of the border.”

Official figures published last week showed that unemployment in Scotland had fallen to just 3.8%. FSB in Scotland is arguing that these figures reinforce the case for measures to cushion the impact of Brexit on Scottish businesses.

Andy Willox said: “It is critical that agreement with the EU27 is now reached on issues such as the length and nature of a transitional deal. We would argue that a three year interim period would be sensible, alongside a comprehensive Free Trade Agreement. Further, EU citizens working in or running businesses in Scotland must have the right to remain in the country.”