Scottish business confidence has risen for the second consecutive quarter, new research from the Federation of Small Businesses (FSB) reveals.
However, FSB’s latest business index also shows that, despite UK confidence falling over the last three months, business optimism is still lower north of the border than the UK average.
The report highlights that it has been two years since a majority of Scottish businesses were confident that business conditions were set to improve.
The Scottish business sentiment metric climbed to -3.8 points, up from -9.6 points in the previous quarter. By comparison, the UK-wide figure fell to +15.0 points this quarter, down from the +20.0 points seen at the start of the year.
FSB says the figures underline the need for the new UK government to put backing the small businesses and self-employed at the heart of its programme.
That means, says FSB’s Scottish policy convenor, Andy Willox, reassuring employers about the future of their EU workers and not reintroducing the recently-shelved plans for tax increases on the self-employed.
Mr Willox said: “A majority of Scottish businesses have been gloomy about their prospects for two years. While, over the course of 2017 a growing share of Scottish firms have shaken off the economic blues, we can’t dismiss this long-term trend.
“While the health of our local economies hardly featured during the general election campaign, it can’t be forgotten about by our politicians. In the short term, the new government needs to quash concerns over the future of EU workers and the possible reintroduction of plans to hike self-employed National Insurance Contributions.
“Small business owners and the self-employed risk everything to create economic activity, jobs and revenues. If we’re to turn these shaky confidence figures around in the longer term, we need to create an environment where more people are ready to take that plunge.”
The report also highlights that profit margins in Scotland continue to be squeezed – with a net balance of 16 per cent of firms in Scotland reporting that gross profits fell during the quarter. The study argues that a key driver for squeezed profit margins is likely to be the depreciation of sterling, resulting in higher prices for imported goods and services.
FSB’s data also shows that Scottish investment intentions are more subdued than elsewhere in the UK. This quarter, a net balance of 5.7 per cent of small businesses in Scotland expect capital investment to rise over the next three months, compared with 13.2 per cent in the previous quarter. Scottish investment intentions now lag the UK as a whole by over 12 per cent.
Mr Willox said: “FSB has highlighted that the cost of employment has been rising for smaller firms for some time. Combined with rising input costs – spiked by the fall in Sterling – it is perhaps little wonder Scottish investment intentions are underwhelming.”