Upturn may be temporary
Optimism rises among small firms, says FSB
However, FSB’s latest business confidence index shows that the average Scottish business owner is still much less bullish than their UK equivalent.
Further, the study suggests the Scottish economy is unlikely to rebound in the short-term as Scottish firms expecting conditions to improve are still significantly outnumbered by those who expect them to deteriorate.
The UK business sentiment metric climbed from +8.5 points in at the end of 2016 to +20 points in the first quarter of 2017. In comparison, the Scottish figure rose from -28.9 points at the end of 2016 to -9.6 points in the first three months of this year.
Andy Willox, FSB’s Scottish policy convenor, said: “Scottish business confidence couldn’t fall much further at the end of 2016. A bounce at the start of this year is welcome, but looks like it will be tricky to sustain given that firms are reporting falling revenues.”
According to this quarter’s data, Scottish small businesses’ revenues declined at the fastest rate for four years. However, a majority of Scottish firms do expect sales and turnover growth over the course of 2017.
The state of the domestic economy continued to be highlighted as the biggest barrier to growth by almost half (49%) of respondents. Official statistics published last week show that the Scottish economy contracted by 0.2% during the fourth quarter of 2016 – a drop foreshadowed by last quarter’s confidence index.
Mr Willox said: “Too few Scottish businesses have faith that our economy is travelling in the right direction. The UK Government needs to convince firms that their plans for Brexit will safeguard their interests. The Scottish Government and our local councils also need to put local growth at the top of their agenda.”
The study also shows that Scottish small employers plan to maintain but not expand their staff teams over the next three months. FSB research suggests that the average smaller employer will face £2,600 in additional employment costs over the coming year as a result of the rise in the National Living Wage, resultant National Insurance contributions and pensions auto-enrolment.
“While economic silver bullets are in short supply, there’s plenty to be done to help firms drive local growth. For example, if we want to see smaller firms continue to create jobs, an expansion to the employment allowance must be delivered,” said Mr Willox.
“In addition, Scotland’s smaller firms are now seeing overheads rising, while they continue to be owed billions of pounds in big business late payments. Efforts to address this problem seem to have stalled – we need to see them kick-started.
“Closer to home, a third of our local roads are in an unacceptable condition and Scotland lags behind England on every measure of digital connectivity. We need urgent action to fix our broken local infrastructure.”