Fraser Sime

Companies in Scotland reported lower confidence in their own business prospects month-on-month, down 17 points at 32%. When taken alongside their optimism in the economy, down six points to -1%, this gives a headline confidence reading of 16%.

Despite the fall in confidence, Scottish firms identified their top target areas for growth in the next six months as diversifying into new markets (39%), investing in new technology (32%) and evolving their offering (30%).

A net balance of 5% of businesses in Scotland expect to increase staff levels over the next year, down 11 points on last month and the lowest of all UK nations and regions.

Overall UK business confidence fell three points during July to 25%. Firms’ outlook on their future trading prospects was up, three points to 37%, but their optimism in the wider economy dropped nine points to 12%. The net balance of businesses planning to create new jobs also decreased, seven points to 21%.

Every UK region and nation reported a positive confidence reading in July, with four out of 11 recording a higher reading than last month. The East of England (up 15 points to 46%), West Midlands (up eight points to 38%) and Wales (up seven points to 30%) saw the biggest increases month-on-month, with the East of England now the most optimistic region overall.

Fraser Sime, regional director for Scotland at Bank of Scotland commercial banking, said: “Headwinds like rising costs and supply chain disruption are continuing to affect businesses across the UK, and it’s no different for firms here in Scotland. Whatever their sector, businesses need to remain resilient at this turbulent time to navigate the challenges ahead.

“To help do this, they should continue to prioritise effective working capital management to ensure sufficient cashflow over the coming months, whilst also regularly auditing supply chains to minimise further disruption.”

Business confidence declined across all four of the sectors in July, reflecting lower optimism about the economy. Confidence within manufacturing declined the most this month (20%/-12), with firms citing moderating trading prospects and a notable drop in economic optimism, but also issues with inflation and supply bottlenecks. There were small falls in confidence for construction (28%/-2), retail (25%/-6) and services (24%/-1).

Paul Gordon, managing director for SME and mid corporates, Lloyds Bank business & commercial banking, said: “With economic pressures gaining momentum, this is undoubtedly a challenging time for businesses.

“Naturally, concerns around an economic slowdown continue to bear down and it is important that firms keep a tight rein on input costs where they can and a close watch on profit margins in what are already tough conditions.

“As many businesses feel the strain, they should look to lean on their support networks, including their banks to help them structure their finances to make sure they are in the best position possible for the months ahead. At Lloyds we remain by the side of businesses to deliver that support.”

Hann-Ju Ho, senior economist Lloyds Bank commercial banking, said: “Business confidence declined this month, suggesting that economic headwinds are becoming more forceful.

“Despite this, firms’ assessment of their own trading prospects showed some resilience in the face of a challenging environment. Meanwhile, price pressures have shown no clear signs of a downward trend and there appears little sign yet that wage pressures are abating.”