Scots business confidence retreats in run-up to Christmas - in contrast to 'encouraging' UK-wide jump

Scotland has seen business confidence drop in the run-up to Christmas – despite the UK as a whole showing an “encouraging” boost, according to new data from Bank of Scotland owner Lloyds.
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Optimism increased across two-thirds of the UK’s regions and nations in December, although north of the Border it fell nine points to 15 per cent, with drops also seen in the West Midlands (9 per cent, down ten points), for example, according to the latest Lloyds Bank Business Barometer. In contrast, strong rebounds seen were seen in eight out of 12 regions covered, with the North West leading the pack at 40 per cent, up 31 points.

The level across the UK rose seven points to 17 per cent, the highest level since July and the first increase since May of this year, although lower than December 2021 (40 per cent) and the long-term average (28 per cent). The rebound was driven by the largest monthly rise in economic optimism since April 2021, the report found, with 43 per cent of businesses more optimistic towards the economy (up six percentage points) and just over a third (down from 40 per cent) less so. This resulted in a net balance of 8 per cent, a rise of 11 points from November.

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The majority of firms were more optimistic over better festive activity as well as their own trading prospects for the year ahead, with 45 per cent (up from 43 per cent last month) forecasting a stronger trading environment, although 18 per cent (down from 19 per cent) reported expecting weaker activity. Hiring intentions improved slightly in line with business confidence, recovering from an 18-month low in November. Furthermore, 41 per cent (up three percentage points) expect to increase staffing levels over the coming year, while 25 per cent (up from 24 per cent) expect to reduce headcount, creating a net balance of 16 per cent (up two points).

Looking at specific sectors, manufacturing reversed a six-month trend of falling confidence, according to the report (file image). Picture: Robert Perry/Getty Images.Looking at specific sectors, manufacturing reversed a six-month trend of falling confidence, according to the report (file image). Picture: Robert Perry/Getty Images.
Looking at specific sectors, manufacturing reversed a six-month trend of falling confidence, according to the report (file image). Picture: Robert Perry/Getty Images.

Wage expectations for next year remain high, with the proportion of firms anticipating pay growth of 3 per cent or more up one point to 26 per cent. However, this is lower than the recent three-monthly average of 26 per cent, which Lloyds said “may point to less vigorous wage growth next year”. As for costs, firms’ expectations for prices of their own goods or services reached a new high in December, and 62 per cent (up from 60 per cent) expect to charge more for these next year.

Looking at specific sectors, manufacturing reversed a six-month trend of falling confidence, with a nine-point rise to 13 per cent, and confidence in construction and services also increased, to 29 per cent and 18 per cent respectively. However, retail confidence fell two points to 13 per cent.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: “Business confidence has received a boost in the run-up to Christmas as firms anticipate a better festive trading period than last year.” Paul Gordon, MD for SME and mid corporates, Lloyds Bank Business & Commercial Banking, said: “It’s encouraging to see the confidence of most regions and nations rallying as we end the year. While wage expectations start to temper, prices continue to rise and keeping a close watch on cash flow remains a priority for businesses, no matter what industry you operate in.”

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