Scottish SME’s experience decline in business health in Q4 2019

Gavin Opperman

However, this was not the case in Scotland, which received its own score of 42.9, a drop of 1.2 points due to its confidence indicator falling a huge 41 points to 0 in the last quarter and the annual rate of net business creation decreasing by 0.3 per cent. On a more positive note, the employment figures had a strong quarter, up 2.0 per cent and into positive territory for the first time since Q1 2018. 

The report, which is published in partnership with leading economic consultancy, the Centre for Economics and Business Research (Cebr), covers Q4 2018 and highlights that on a national level, SMEs are continuing to hire staff, taking employment rates to record levels 

It also examined the health of SMEs on UK cities for the first time over the same time period to add extra depth and insight to the regional picture. In total, 25 cities were examined, which included the Scottish cities of Edinburgh, Glasgow and Aberdeen. Edinburgh was the highest performing, sitting in fifth, due to strong employment figures, however, its score is held back by a relatively slow rate of growth of its SME population. 

Glasgow sits middle of the table in 12th place and despite its potential to attract skilled young workers to the city, it’s not experienced the sizeable employment gains observed by other cities in the UK. Aberdeen closely follows in 14th, which was driven by its tepid performance across sub-indicators. The city is most reliant on the productive sector, primarily its crucial oi and gas sector, and the fall in energy price at the end of 2018 will have been a major concern to businesses who directly and indirectly support the sector. 

Gavin Opperman, group business banking director, at CYBG, said: “This is the first time the SME Health Check Index has done a deep dive into SME activity in the UK cities. SMEs are the backbone of Britain’s economy and cities, like Edinburgh, Glasgow and Aberdeen, often act as drivers of regional economies. This new level of detail gives us an excellent insight into what’s really happening at a local level and is invaluable in supporting our customers Scotland.” 

At a national level, the report reveals that businesses have increased their borrowing with lending reaching the highest level since this index began in 2014. However, in contrast, this was accompanied by plummeting confidence levels, as well as a 0.9 per cent decrease in investment. Despite decelerating GDP growth and continued uncertainty about Brexit, SMEs seem wary but optimistic with a determination to “keep calm and carry on”. 

From the seven indicators surveyed, five showed improvement with Q4 2018 witnessing a welcome slow-down in business cost inflation. It fell to 2.8 per cent, which is 0.2 per cent lower than the rate recorded in the third quarter. This was primarily driven by a slowdown in price growth for commercial rents and physical inputs as employment cost inflation continued to accelerate. 

Mr Opperman added: “The latest SME Health Check Index shows a nuanced picture but one which gives me cause for optimism, as the country’s SMEs seem poised for greater growth and success when the Brexit fog clears. They are showing resilience and resolve with strong employment growth, positive net business formation and increased borrowing, which is all good news for UK plc. However, decelerating GDP growth, partly driven by a slowdown in the global economy and increased household borrowing, feeds in to decreased confidence.”