More conflicting evidence about business confidence emerged today, suggesting companies are unclear about the effect of short term issues such as government support, energy prices and the war in Ukraine.

Addleshaw Goddard’s Scottish Business Monitor detects “a glimmer of hope” with overall business sentiment returning to positive territory after slipping into the red last year.

However, small firms continue to feel uncertain about their prospects, according to the latest figures from the Federation of Small Businesses (FSB) which says Scotland’s small business confidence fell again in the final quarter of 2022.

These latest findings follow a spate of contradictory responses. While Lloyds Banking Group, Grant Thornton and Scottish Engineering found businesses largely positive, the Scottish Chambers of Commerce pointed to more gloom.

Analysts believe differences could be explained by rapidly changing circumstances. In the latter half of 2022 supply chains were disrupted by the Ukraine war, while inflation rocketed and a long era of low interest rates was rapidly brought to an end with a succession of increases.

The turmoil in Downing Street and a series of UK government policy u-turns, particularly on tax, may have contributed to the confusion and uncertainty.

There is also a growing view that smaller firms are bearing the brunt of the current cost crisis. The FSB says the plunge in confidence is almost on a par with that measured during the second Covid lockdown.

Andrew McRae, FSB’s Scotland policy chair, said: “Scotland’s small business community has endured an unprecedented sequence of challenges over the last two and a half years.

“Rising inflation, increasing energy prices, and staff shortages to name a few. The constant battle to just survive during this cost of doing business crisis means it is no surprise that confidence levels are now at their lowest on record, outside of Covid lockdowns.”

But many firms are showing a level of resilience and an ability to adapt to adverse conditions that is reflected in plans for expansion.

The Addleshaw Goddard monitor indicates that firms are increasingly taking their own steps to tackle the energy price issue, with more than 60% speeding up energy-efficient improvements.  

Notably, over the next six months total employee costs are expected to overtake energy and input costs as the biggest cost driver.

On the downside, fewer firms are engaged in capital investment and export activity and 75% of businesses expect growth in the Scottish economy to be weak or very weak over the coming year.