Companies in Scotland reported lower confidence in their own business prospects month-on-month, down one point at 22%. When taken alongside their optimism in the economy, down six points to 26%, this gives a headline confidence reading of 24%.

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

The survey captured responses between 26th November and 10th December. The first two cases of Omicron in the UK were confirmed on 27th November and nations began announcing the reintroduction of restrictions in the week commencing 6th December.

A net balance of 23% of businesses in Scotland expect to increase staff levels over the next year, up nine points on last month.

Overall UK business confidence was unchanged from November’s reading at 40%. While confidence remained above the long-term average (28%), during the second week of sampling when the Omicron variant emerged, confidence fell to 32%.

Despite potential challenges from the new Covid-19 variant on the horizon, firms remained positive about their future trading prospects, up four points month-on-month to 43%. The net balance of businesses planning to create new jobs also increased by three points to 33%. Optimism in the economy overall remained positive at 38%, down just three points on November’s result.

Every UK nation and region maintained a positive overall confidence reading in the December barometer, with four reporting a higher reading than last month. The North East (up 13 points to 58%), North West (up 14 points to 48%), Yorkshire and Humber (up four points to 35%) and East of England (up 12 points to 50%) all had stronger confidence readings month-on-month, with the North East and London (57%) the most optimistic overall.

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said: “It’s great to see levels of business confidence across Scotland remain strong, especially in the face of clear challenges.

“The pandemic continues to cause disruption for many, and the reintroduction of some restrictions will pose difficulties, particularly for those in the hospitality and leisure sectors who may find festive celebrations quieter than they hoped for.

“As we look to the new year, we’ll be by the side of Scottish firms helping them to unlock growth opportunities and navigate the challenges ahead.”

In the industry sectors, construction recovered to 39% from November’s seven-month low of 28%, following a minor easing in supply-chain disruptions. Despite a slight fall in confidence in manufacturing to 40%, trading prospects in the sector have remained higher than the whole economy throughout this year.

There were also small declines for retail (43%) and services (39%) ahead of the festive period. There have been some marked differences in these sectors in recent months, with notable strengths in the professional services sector (including finance) and in IT/communications. However, the current three-month average sentiment among hospitality firms is at its lowest level (24%) since the first quarter of the year (4%). This has been fuelled by a significant monthly drop of 48 points to 6% between November and December.

Paul Gordon, managing director for SME and mid corporates, Lloyds Bank Commercial Banking, added: “December’s Business Barometer shines a light on the resilience of the UK’s sectors and regions. However, businesses need to remain cautious as they move into 2022 as demand is set to be impacted by the rise of Omicron and likely tightening of restrictions across the UK.

“There are positive points with significant rises in confidence in Northern Ireland and the North West, while trading prospects in manufacturing remain higher than the rest of the economy despite the continued pressures the sector is facing into. We remain by the side of businesses as they continue to pursue growth despite these challenges.”

Hann-Ju Ho, senior economist Lloyds Bank Commercial Banking, said: “It is a challenging end to 2021 as businesses are now having to adapt to the new Omicron variant and resultant restrictions across the UK. Nevertheless, business confidence remains resilient and above the long-term average due to a rise in trading prospects, while pay and price expectations continue to be elevated.

“Businesses face into a number of headwinds and challenging trading conditions, including higher interest rates, as we move into 2022, but many remain resilient and hopeful that acute downside risks are not realised.”