Yet more reports that Scots business confidence remains frosty - but rest of UK predicts sunnier times ahead

Business confidence in Scotland is among the lowest in the UK, according to the findings of a new survey by the Bank of Scotland (BoS) published today along with a contrasting report from accountants BDO reflecting rising business optimism south of the border following Brexit developments.

The results of the Edinburgh-based lender’s latest Business In Britain report comes hot on the heels of last week’s Federation of Small Businesses’ report which found Scottish business confidence at a “near record low”.

The BoS report looks at expected sales, orders and profits over the next six months and found they had fallen two points to 17 per cent in Scotland from 19 per cent in July.

Only Yorkshire and the Humber ranked lower for business confidence at 15 per cent, while the north-east of England came top at 38 per cent and the UK-wide average was 24 per cent, BoS said.

A total of 1,516 UK firms responded to the study, which weighs up the percentage of firms positive in outlook against the negative.

BoS found economic uncertainty was the single greatest risk to Scottish businesses, with 27 per cent concerned, up from 22 per cent six months ago. The proportion of Scottish firms confident about business prospects in the Brexit talks fell to 38 per cent from 49 per cent, while those who lacked confidence in this regard rose 10 points to 35 per cent.

BoS regional director Jane Clark-Hutchison said: “It’s disappointing to see Scottish businesses towards the bottom of the confidence index but perhaps not unsurprising given the backdrop of economic uncertainty.”

The share of Scottish firms expecting stronger exports was plus 17 per cent and the net balance looking to grow investment stable at 2 per cent.

However, the recent reports of languishing business confidence north of the border contrasts with the findings of the latest Business Trends Report by accountants and business advisors BDO, which found UK businesses are more optimistic about 2018 following the progress made towards Brexit at the end of last year.

The report reveals that firms are now more confident about their fortunes in 2018, likely bolstered by the news that the government is making progress in its Brexit negotiations.

BDO’s Optimism Index, which indicates how firms expect their order books to develop over the coming six months, increased to 102.15 in December from 102.05 in November, above its long-term average.

However, despite the positive outlook for 2018, the report did also find that business output growth has fallen to a 23-month low.

BDO’s Output Index, which indicates UK business output for December, fell to 98.45, from 98.99 the previous month. Business output growth has now fallen for the past five consecutive months.

The UK’s falling output growth is being driven by the slowdown of the services sector, which accounts for almost 80% of all UK GDP. BDO’s Services Output Index also sits at a 23-month low, falling from 98.95 to 98.21 in December. The sector has been weighed down by Brexit uncertainty which has since been reduced following the progress made in December which has led to the rise in optimism.

On the contrary, UK Manufacturing output continues to strengthen. In December, BDO’s Manufacturing Output Index climbed above the long-term trend of 100 for the first time in four months, rising to 100.33 from 99.33 in November.

The rise in business optimism is also being reflected in the jobs market. BDO’s Employment Index, which indicates firms’ employment intentions, has increased 0.2 to 111.26 in December, which is well above the long-term trend and only just below its record high of 111.72. The findings suggest that employment levels could surpass the records set in September last year.

Martin Gill, partner and head of BDO LLP in Scotland, said: “UK businesses collectively breathed a sigh of relief when progress towards Brexit was announced at the end of the 2017. Business leaders are now more confident about the year ahead and are bolstering their recruitment efforts as a result. However, despite unprecedented levels of employment, business output continues to slow.

“While the UK government prioritises securing our future outside of the EU, it must not overlook the immediate challenges stifling the growth of our economy. The perennial productivity problem must be addressed by accelerating investment in infrastructure and training before we fall further behind our G7 counterparts.”

To download BDO’s New Economy report and find out more visit www.neweconomy.bdo.co.uk