Scottish business confidence shows 'encouraging' rise to highest level since June 2021

Business confidence in Scotland has notched up its highest reading since June 2021, according to a major survey from Bank of Scotland Commercial Banking.

The lender has today published its latest Business Barometer, which found that every UK region and nation reported positive confidence readings in May.

The 98 companies in Scotland who took part in the latest survey saw optimism about their own business prospects reduce month on month, down three points at 31 per cent, and when taken alongside their positive outlook for the economy, up 31 points to 52 per cent, this gave a headline confidence reading of 42 per cent.

Such firms flagged a range of growth opportunities for the next six months, including entering new markets (38 per cent), evolving their offering (34 per cent), and introducing new technology plus investing in their staff, factors that both came in at just under a quarter. A net balance of 39 per cent of businesses in Scotland expect to increase staff levels over the next year, up 13 points on last month.

Looking at the UK as a whole, business confidence increased by five points to 38 per cent, its highest level since February, while the net balance of companies planning to create jobs also increased, by 11 points to 37 per cent.

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said: “While the past few months have presented a myriad of challenges for Scottish firms, it’s encouraging to see business confidence continue to rise in May. With a busy summer for many ahead, businesses will be hoping the cost-of-living crisis doesn’t quell consumer demand too severely.

“This will be the first restriction-free summer in Scotland since 2019, and firms will need to closely manage their working capital to ensure they are ready for any peaks and troughs in demand. Doing so will ensure they remain resilient and can take advantage of what we hope can still be a profitable period for businesses up and down the country.”

Fraser Sime of Bank of Scotland Commercial Banking cheered the rise in business confidence, while urging firms to closely manage their working capital to 'remain resilient'. Picture: Lisa Ferguson.

Lloyds-owned Bank of Scotland added that from a sector perspective, retail confidence fell two points to 27 per cent, the lowest since March 2021 as pressure on household real incomes weigh on spending prospects.

In contrast, there was a 21-point rise in construction to 54 per cent, while manufacturing sentiment remained robust, up two points to 45 per cent. Bullishness in the services sector reached a three-month high, increasing 4 points to 36 per cent.

Positives

Paul Gordon, MD for small and medium-sized enterprises and mid corporates at Lloyds Bank Commercial Banking, welcomed various positives emerging in the latest report.

"However, it is understandable that there continues to be caution around the future, given inflationary pressures and potential for economic slowdown,” he said. “In response, businesses should ensure they keep a tight rein on input costs to help support profit margins and keep working closely with their suppliers and customers to ensure any changes in supply or demand are noticed in good time.”

Furthermore, Lloyds Bank Commercial Banking senior economist Hann-Ju Ho noted concerns around higher costs and an economic slowdown, stating: “More immediately, consumer-facing industries such as retail are not feeling the same confidence uplift amid the widespread reports of a squeeze on household incomes.”