Scotland’s SME business health stable, but confidence declines in Q3 2018 - CYBG

Scotland’s SME business health stable, but confidence declines in Q3 2018 - CYBG

Gavin Opperman

The health of SMEs in Scotland has improved slightly in the third quarter of 2018, according to latest research by Clydesdale Bank owner CYBG, in partnership with leading economic consultancy, Centre for Economics and Business Research (Cebr).

However, the index score remains below the levels recorded in previous years in Scotland, highlighting that SMEs are in worse shape than they have been

The report has revealed that business health in Scotland has risen by one point to 42, with a net increase in business creation of 4%. Revenue and GDP indicators also improved, however, declines in SME sentiment supressed any further gains.



Looking at the national picture, CYBG’s Q3 SME Health Check Index has found that the market is broadly stable, having recorded 46.3 points, down 0.7 points from last quarter. Although the drop is not severe, the findings represent the second lowest level recorded since data collection began at the start of 2014 and were largely driven by depressed business confidence across the quarter.

The report revealed that although the UK economy grew by 0.6 per cent – the fastest rate of quarterly growth rate since 2016 – market sentiment has been subdued. This is doubtlessly partly attributable to the impact Brexit has had on SMEs outlook.

The most marked change was in SME confidence, which fell sharply by 23 points to 34 - the third lowest ever recording. Of the other research indicators, business costs and revenue also worsened. Putting the results into context, the highest overall score the Index has found was 87.3 in Q4, 2015 - 41 points higher than recorded in this quarter.

However, there is some positive movement, with UK SMEs reporting improvements in four of the eight performance indicators - capacity, employment, gross domestic product and net business creation - while the Index score for lending remained unchanged. In Q3, improvements in the retail sector alongside recoveries in manufacturing and construction contributed to the upticks in the GDP and capacity indicators.

As part of the report, CYBG and Cebr have also conducted research on the potential regional impact of Brexit. The research is based on four indicators – exports, labour supply, imports and foreign direct investment - with Scotland coming in second place, highlighting that it is more vulnerable to the risks that could arise from Brexit more than any other British region, apart from Wales.  Of those SMEs surveyed, 42 per cent import goods and / or services from the EU, which is the highest share in the UK. Additionally, Scotland is the UK’s largest exporter of beverages and tobacco and EU tariffs could be detrimental to these producers’ international competitiveness.

Gavin Opperman, group customer banking director, at CYBG, said: “At a macro-economic level, the UK appears to be faring well. Net business creation has shown marked improvement and the share of SMEs operating below capacity has also dropped. Framing this is relatively strong GDP growth, particularly impressive given other major economies have slowed.

“Given this seemingly positive backdrop, it would be reasonable to expect this quarter’s Health Check Index to reflect a more optimistic SME market, however the political and economic uncertainty driven by Brexit have sowed seeds of doubt and businesses have made it clear that they are unsure about what 2019 holds for them.”

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