Companies in Scotland reported lower confidence in their own business prospects month-on-month, down 17 points at 8%. When taken alongside their optimism in the economy, up six points to 12%, this gives a headline confidence reading of 10%.

Scottish businesses identified their top target areas for growth in the next six months as evolving their product and service offer (42%), investing in sustainability (29%) and investing in their teams (27%).

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

A net balance of 14% of businesses in the region expect to increase staff levels over the next year. This is up from December when a net balance of 11% of businesses reported plans to make new hires.

Overall UK business confidence climbed in January, with firms reporting their highest confidence levels since July last year.

Business confidence increased by five points to 22% and the net balance of businesses feeling optimistic about the economy doubled on December’s reading to 16%.

Ahead of National Apprenticeship Week (6-12th February) 30% of businesses across the UK reported that they are looking at opportunities to grow by investing in staff development and training. A net balance of 17% of firms reported plans to create new jobs in the next twelve months.

Chris Lawrie, area director for Scotland for Bank of Scotland commercial banking, said: “Ongoing pressures from wider economic challenges are clearly continuing to impact Scottish businesses, but confidence remains in positive territory and firms’ resilience shines on.

“Over the next few months as concerns such as rising costs continue, it is important firms keep a close eye on cash flow. Having reserves ready for when challenges hit makes managing turbulent periods easier. We’ll remain by the side of Scottish firms to help them successfully navigate the months and years ahead.”

For the second month in a row, confidence in the manufacturing and service sectors increased, with manufacturing rising to 28% (up 15 points) and services up to 25% (up seven points). Business confidence in construction was down two points to 27%, while retail confidence fell for the second month in a row to 7% (from 13%), the lowest level since February 2021.

Paul Gordon, managing director for relationship management, Lloyds Bank business & commercial banking, said: “After a challenging 2022, it’s heartening to see confidence rising for the second consecutive month.

“This is the first back to back increase since September 2021. There is no doubt that the business environment remains challenging and uncertainty still remains, but this improvement in optimism is very welcome as we start 2023.

“With pay expectations tempering, trade expectations set to improve, and a clearer way forward on energy price support, this may give businesses a bit more certainty and the confidence they need to inspire investment and promote growth.”

Hann-Ju Ho, senior economist for Lloyds Bank commercial banking, said: “Business confidence continues to improve following the December boost. Firms are clearly more optimistic about the wider economy and this is driving the increase, helped by precursory signs that wage and other cost pressures may be easing.

“It is still a tough environment for businesses, with high energy bills remaining a concern during the winter months, but there are grounds for optimism for 2023 if inflation starts to trend lower.”