Fraser Sime

Companies across the country reported lower confidence in their own business prospects month-on-month, down 29 points at 3%. When taken alongside their optimism in the economy, down 5 points to -6%, this gives a headline confidence reading of 5%.

Scottish businesses identified their top target areas for growth in the next six months as diversifying into new markets (30%), evolving their offering (30%) and investing in their teams (27%).

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

A net balance of 10% of businesses in the region expect to increase staff levels over the next year, up 5 points on last month.

Overall UK business confidence fell nine points during August to 16%, its lowest level since March 2021. Firms’ outlook on their future trading prospects was down 32 points to 5%, and their optimism in the wider economy dropped six points to 6%. The net balance of businesses planning to create new jobs also decreased five points to 16%.

While every UK region and nation reported a positive confidence reading in August (except the South East, where confidence dropped 15 points to 0%), only three recorded a month-on-month increase in optimism. The three regions were the North West (up 26 points to 44%), South West (up 12 points to 23%) and Yorkshire (up nine points to 23%), with the North West now the most optimistic region overall.

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said: “Ongoing pressures around rising costs are clearly continuing to impact Scottish
businesses but, despite this month’s dip, that confidence remains in positive territory is evidence of firms’ resilience.

“At times like these, businesses need to keep a close eye on cash flow to help mitigate turbulence in the months ahead. It’s encouraging to see businesses continuing to target new growth opportunities, with nearly a third planning to diversify into new markets. We’ll remain by the side of Scottish firms to help them successfully navigate the challenging period ahead.”

Business confidence declined across all four sectors in August. Confidence within the retail sector declined the most this month (13%, down 18 points), with the service sector also seeing a significant nine-point decrease (15%). Other sectors saw moderate decreases, with manufacturing down by four points (16%) and construction (26%, a fall of two points), in line with recent trends.

Paul Gordon, managing director for SME and mid corporates, Lloyds Bank Commercial Banking, added: “With inflationary pressures growing, businesses will no doubt be looking to their supply networks along with tight control of costs and profit margins where they can.

“We know that rising costs are already dealing a heavy blow to businesses, but remaining agile to the changing economic environment will be vital for businesses in the months ahead. Firms must keep a tight watch on costs and structure their finances wisely, so they are in the best position possible. Businesses should try to remain flexible, and use the capital and cashflow available to them. At Lloyds we remain by the side of businesses to help deliver that support.”

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, commented: “Business confidence declined for a third consecutive month as firms continue to face economic challenges in the period ahead and as inflation concerns intensify. Despite edging lower this month, the outlook for both wage and price pressures remains elevated. However, there are some brighter points as the demand for staff remains positive, and firms reported lower concerns about staffing issues and the pandemic.”