Scottish business confidence falls amid cost challenges

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking

Bank of Scotland’s Business Barometer for March 2022 shows:   

  • Scottish business confidence fell 18 points during March to 17%  
  • Scottish firms identify top growth opportunities as investing in their teams (39%), exploring new markets (30%) and evolving their offering (28%) 
  • Overall UK business confidence fell 11 points during the last month to 33%, with eight out of 11 nations and regions recording a lower reading than February 

BUSINESS confidence in Scotland fell 18 points during March to 17%, according to the latest Business Barometer from Bank of Scotland Commercial Banking.   

Companies in Scotland reported lower confidence in their own business prospects month-on-month, down 24 points at 18%.  When taken alongside their optimism in the economy, down 12 points to 16%, this gives a headline confidence reading of 17%.  

Despite the dip in 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 evolving their offering, such as introducing new products or services (28%).  

The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide. 

A net balance of 9% of businesses in Scotland expect to increase staff levels over the next year, down 22 points on last month.   

Overall UK business confidence dropped 11 points during March, from 44% to 33%. Firms’ outlook on their future trading prospects (down from 45% to 34%) and optimism in the economy (down from 43% to 32%) both also fell by 11 points on February’s reading. The net balance of businesses planning to create new jobs decreased slightly, by six points to 32%.  

Every UK region and nation reported positive confidence readings in March, with the exception of Wales which saw confidence drop from 29% to -5%. Only London (up 13 points to 60%), Yorkshire and the Humber (up six points to 57%) and the North West (up one point to 45%) reported a higher reading than last month, with London now the most optimistic region overall.  

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

“The nation’s businesses have proven their resilience over the past two years and will be braced for the months ahead. We’ll continue to be by the side of Scottish businesses to help see them through this tumultuous period.” 

From a sector perspective the impact of the war in Ukraine appears to have had the greatest impact on manufacturing and retail firms. Both sectors saw drops in confidence of 19% from February’s highs (to 35% and 28% respectively). From a manufacturing perspective confidence levels are now at their lowest since last summer, while retail has fallen to a one-year low. 

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

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “There is little doubt that businesses across all sectors are being impacted by the current geo-political and financial situations. Businesses that were beginning to see green shoots are now having to reconsider their approach and adapt to a new set of challenges.  

“It is yet to be known 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 see how they respond to next month’s survey. 

Hann-Ju Ho, Senior Economist Lloyds Bank Commercial Banking, said: “March’s data shows UK businesses are facing significant challenges from the impact of Russia’s invasion of Ukraine in increasing economic uncertainty and ongoing inflationary pressures. Following encouraging improvements at the start of the year, March’s fall in confidence is therefore disappointing, but not surprising.  “There are positives with the fact that confidence remains above the long-term average and it appears for now that growth will moderate. But it is difficult to gauge what the full impact will be and therefore businesses have become more cautious.” 

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