Scotland’s SMEs positive on revenue growth despite languishing confidence in UK economy

Scotland’s SMEs expect revenue growth over the coming year to accelerate despite expecting business conditions to deteriorate.

The first SME Growth Tracker of 2018, the quarterly report by Capital Economics, commissioned by Amazon UK and Enterprise Nation, reports today that overall, Scotland’s SMEs reported a rise in revenue of 1.5 per cent and a rise in employment of 0.9 per cent, during the first three months of the year.

The findings indicate an increase in productivity of 0.6 per cent over the past twelve months, around the same as the UK-wide increase of 0.7 per cent.

Looking to the future, Scotland’s SMEs expect revenue and jobs growth to accelerate to 2.1 per cent and 1.0 per cent respectively over the coming twelve months, around double the increase in revenue and jobs growth expected last quarter (1.2 per cent and 0.4 per cent respectively).

Overall, the SME Growth Tracker Confidence Index score for individual company performance was up 5 points to -8, compared to the UK score of -6, and up 6 points to -29 for confidence in the broader economy, continuing to recover each quarter following the lowest levels reported after the snap election in June 2017.

However, while confidence in the UK economy has increased quarter on quarter, Scotland’s SMEs remain the most pessimistic about the UK economy. Indeed, – with a score of -29, Scottish SMEs underperform the national score of -18 by eleven points.

E-commerce adoption is similar across all UK regions, with surveyed SMEs in the North East and West Midlands reporting the highest levels of e-commerce uptake (69 per cent). In contrast, Scotland and the South-East represent areas with the lowest levels of adoption (61 per cent). SMEs who use e-commerce forecast stronger growth in profit than those that do not use e-commerce (1.2 versus 1.0 per cent), even though they are more pessimistic about their business conditions (confidence index score of -8 versus -4). Businesses that use e-commerce expect to see revenue increase of 1.6 per cent over the next twelve months, compared to 1.3 per cent of those businesses that do not.

Amazon’s SME Growth Tracker is published on the back of the second annual Amazon Academy, a free event designed to equip Scottish SMEs with the skills they need to compete in a constantly growing digital economy.

More than 500 hundred small businesses and entrepreneurs turned up to the Academy at the SECC in Glasgow on 17th April, to hear from a range of experts and successful SMEs offering advice and support for growing business through digital tools and services.

“It’s clear that Scotland’s SMEs are open for business, and those taking advantage of the opportunities presented by e-commerce can grow at a faster rate,” said Doug Gurr, UK country manager at Amazon. “The commercial benefits to be found by the adoption of digital technology can be enjoyed by all businesses. In fact, last month we published findings showing that more digital adoption in Scotland’s rural areas could add up to £2.5bn to the economy’s GVA, so the more SMEs we can support and help adopt digital, the better for the Scottish and UK economies.”

The SME Growth Tracker found that 76 per cent of Scottish SMEs have not delayed any business decisions due to Brexit, but 15 per cent said they delayed hiring additional staff, 11 per cent delayed seeking funding for further growth and 8 per cent delayed international expansion plans since the 2016 referendum vote on the UK’s membership of the European Union. The biggest negative impact of Brexit is expected to be its effect on pushing up supply costs, with a score of -35. Looking ahead to the next twelve months, Scottish SMEs expect supply costs to rise by 3.9 per cent – similar to the 3.5 per cent increase seen over the past year – the highest expected increase among the UK’s regions.

Mark Pragnell, chief project economist at Capital Economics, added: “Since launching the SME Growth Tracker soon after the EU referendum in 2016, we’ve seen a pattern emerge showing SMEs in the majority of regions which primarily voted to leave the EU, consistently more optimistic than SMEs in regions that voted remain. For example, this quarter, both the East and West Midlands – which had the highest share of the electorate vote leave in the Brexit referendum – have reported greater confidence than SMEs in Scotland and London where the majority voted to remain. But confidence does not appear to correlate with revenue growth expectations, with London and Scottish SMEs forecasting higher revenue growth than SMEs in the East and West Midlands.”