Scottish business confidence remains low

Bank of Scotland’s Business Barometer for July 2020 shows:

• Overall confidence of firms in Scotland rose four points in the past month to     -37%
• Firms’ confidence in their own business prospects was unchanged month-on-month at -33%
• One in ten (9%) businesses experienced an increase in demand, up four points on June

Business confidence in Scotland rose four points during July to -37%, according to the latest Business Barometer from Bank of Scotland Commercial Banking.

Companies in Scotland reported the same level in confidence in their business prospects month-on-month at -33%.  When taken alongside their views of the economy overall, this gives a headline confidence reading of -37%.

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

The majority of firms continued to see demand negatively affected by coronavirus during July. Almost two thirds (64%) experienced a fall in demand for their products and services, up six points on the month before. However, 9% experienced an increase in demand, up four points on June.

With the Job Retention Scheme beginning to wind down from August, two fifths (41%) of Scottish firms surveyed said they didn’t currently have any furloughed workers.

Of the 55% of businesses reporting disruption to their supply chain during July, 18% expected the situation to improve within three months, while only 2% expected it would take more than 12 months to return to normal levels.

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said: “While marginal, the slight increase in confidence we’ve seen this month is a step in the right direction.

“There’s still a long way to go for confidence to fully recover, but the current transition to Phase 3 of lockdown should hopefully continue to boost many firms’ trading prospects.

“Pessimism is waning in many English regions as the hospitality and leisure sectors open their doors once again. With many firms beginning to restart operations here in Scotland this month, August will be telling as to whether the same confidence-inducing effect will take hold here too.”

National overview

At UK level, confidence increased eight points to -22% during July. The North East was the most confident region at -3% followed by the West Midlands (-7%) and the North West          (-15%). Wales and Scotland were the least confident with -31% and -37% respectively.

In July, the retail sector increased 11 points to -12%, manufacturing increased 14 points to -21% and services rose 10 points to -26%. However, construction fell eight points to -22% after last month’s strong increase of 30 percentage points.

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “With only one region reporting a fall in sentiment, we are starting to see sentiment lift for the vast majority of regions across the UK. 

“The easing of lockdown restrictions, including the reopening of the economy and the relaxation of social distancing rules, has resulted in most businesses reporting improvements in demand, from a record-low base. This is key for the summer season, which will allow businesses to continue to open their doors and trade in the weeks and months ahead.”

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said: “While the results suggest the economy is starting to see some improvement, economic confidence still remains in deep negative territory.

“The Government announcement of the slight easing of social distancing measures has now enabled over half of businesses to reach their capacity and resume their usual activities. However, how businesses will continue to respond to the Job Retention Scheme will be key in the coming months.”