Bank of Scotland Business Barometer: Dip in Scottish business confidence

Bank of Scotland’s Business Barometer for October 2022 shows:  

• Business confidence in Scotland fell 10 points during the last month to 5%
• Country’s businesses identify top growth opportunities as evolving their offering (33%), investing in their teams (29%) and entering new markets (27%)
• Overall UK business confidence fell one point during the last month to 15%, with five out of 11 nations and regions reporting a higher reading than September

Business confidence in Scotland fell 10 points during October to 5%, according to the latest Business Barometer from Bank of Scotland Commercial Banking – conducted between 3^rd-17^th October.

Companies in Scotland reported lower confidence in their own business prospects month-on-month, down 11 points at 22%.  When taken alongside their optimism in the economy, down 10 points to -14%, this gives a headline confidence reading of 5%. 

Scottish businesses identified their top target areas for growth in the next six months as evolving their offering (33%), investing in their teams (29%) and entering new markets (27%).

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

A net balance of 16% of Scottish businesses expect to reduce staff levels over the next year, down two points on last month.

Overall UK business confidence fell one point during October to 15%, in line with the average over the last three months. Firms’ outlook on their future trading prospects was up two points to 27%, and a net balance of 21% are planning to create new jobs, up four points on last month. However, businesses optimism in the wider economy dropped three points to 2%.

Five UK regions and nations recorded a month-on-month increase in optimism in October. Of those, London (up 16 points to 49%), the North West (up 14 points to 28%) and Wales (up nine points to 5%) saw the largest monthly increases, with London remaining the most optimistic region overall.

Chris Lawrie, area director for Scotland at Bank of Scotland, said: “Ongoing economic challenges, not least the cost of doing business, is hitting firms and we’re seeing this reflected in a less optimistic outlook.

“As we approach the busiest trading period of the year for many, businesses across the country need to prioritise maintaining a steady cashflow to remain resilient and be well-equipped for any opportunities to grow.

“After all, Christmas can be a frenetic and expensive time for businesses and their customers, so firms need to have a plan in place to manage this, as well as having some money aside to cover unexpected costs.

“We’ll remain by the side of Scottish businesses to help them continue to navigate the challenging market conditions and push for growth.”  

Business confidence in the manufacturing sector fell for the fifth month in a row, to 13%, down 1 percentage point, the lowest confidence level since February 2021.

Confidence in the retail sector declined by 6 percentage points to 9%, while confidence in the services sector also fell to 16%, both the lowest levels since early 2021.

However, the construction sector saw a 10 percentage point rise to 20%, although this level still remains weaker than in the first half of the year.

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “While confidence has marginally decreased this month, this also comes at a time of great economic uncertainty. The fact that it has only fallen by 1% suggests that businesses are showing resilience.

“As we head into the winter months and price pressures continue, energy price increases will start to bite and we are seeing continued pressure on pay expectations.

“Businesses need to keep a watchful eye on costs to ensure they are in the best possible position to face any future headwinds. For businesses that may be struggling, we encourage them to reach out to their networks for support. At Lloyds Bank we remain by the side of businesses to help navigate these challenging times.”  

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “While business confidence has marginally fallen this month, along with a drop in forward looking economic optimism, it is encouraging to see businesses still looking to increase their headcounts.

“However, cost pressures remain evident as businesses raise prices to protect their margins and wage pressure continue to be impactful. Given the recent turbulence in financial markets, it will be interesting to see how this will affect business confidence.”