Companies in Scotland reported lower confidence in their own business prospects month-on-month, down seven points at 44%. When taken alongside their optimism in the economy, down 14 points to 18%, this gives a headline confidence reading of 31%.

Scottish businesses identified their top target areas for growth in the next six months as evolving their offer (39%), investing in their team (37%), and entering new markets (24%).

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

A net balance of 30% of businesses in Scotland expect to increase staff levels over the next year, up five points on last month. Overall UK business confidence fell two points in December to 35%, the first decrease since August, driven largely by firms’ outlook on the overall UK economy which dipped by eleven points from 38% to 27%. Businesses’ optimism in their own trading prospects also decreased, but less markedly so – by five points to 43%.

Companies’ hiring intentions also dropped slightly with 29% of firms intending to increase staff levels over the next 12 months, down six points month-on-month.

Firms in West and East Midlands were the only regions to report an increase in confidence, up one point to 33% and up five points to 34% respectively. The North East was most confident, remaining at 48% for the second consecutive month, followed by the East of England (45%), London (38%) and the South West (36%).

Firms in the services industry reported a significant decrease in confidence, down 16 points to 30%, due to moderation in both trading prospects and economic optimism. Manufacturing confidence also eased back (38%, down seven points). However, retail and construction both bucked the trend with rises to 44% (up two points) and 37% (up two points) respectively.

Martyn Kendrick, regional director for Scotland at Bank of Scotland Commercial Banking, said: “While we’ve seen a dip in confidence from businesses in Scotland, we’re still seeing strong figures at 31%, just four points below the national average.

“With the festive season keeping many businesses busy, it’s encouraging to see them thinking positively about the year ahead with trading prospects one point higher than the UK average.

“For those planning to invest in their teams and evolve their offer, now is a perfect time to think about cash flow to ensure they enter the new year on steady footing, ready to capitalise on new upcoming opportunities. We’ll continue to be by the side of businesses throughout 2024 and beyond to help them prosper.”

Paul Gordon, managing director for SME and Mid Corporates at Lloyds Bank Commercial Banking, added: “After some strong performances in November, a number of sectors have declined this month including services and manufacturing.

“However, both are still higher and stronger than a year ago. Retail and construction firms are both marginally more confident this month and significantly more so than in December 2022.

“Despite the falling confidence figures for this month, we can be comforted that businesses have been resilient during a year of challenging economic conditions and continue to be positive about the future.

“However, as recent ONS GDP data has shown, the UK near-term economic outlook remains tough and that will no doubt have an impact on consumer and business behaviour alike. If businesses take time to look at their financial stability now to ensure cash-flow remains a priority, as well as planning ahead their staffing levels and requirements, that should put them in good stead to both manage headwinds and seize opportunities in 2024.”