Small business confidence in Scotland has dropped, the FSB finds

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Small business confidence in Scotland has dropped sharply, according to a new Federation of Small Businesses’ (FSB) report.

The FSB’s Scottish Small Business Confidence Index fell to -15.2 points in the third quarter of 2017, down from -3.8 points in the previous quarter.

The equivalent UK figure fell even more steeply, from +14.9 points to +1 point, but the average UK firm remained much more optimistic than their Scottish counterpart.

According to the business organisation, profit margins continue to be squeezed, with seven per cent of Scottish smaller firms reporting a fall in gross profits.

Moreover, more firms have warned that higher input costs, such as the cost of raw materials, are a barrier to business growth.

However, there has been a slight rise in the percentage of firms who plan to increase their investment in the next quarter, up from six per cent earlier in the year to seven per cent, although it remains lower than the rest of the UK.

The FSB said the Scottish Government had done the right thing by backing investment rates relief – a measure recommended in the Barclay business rates review – but it has called for a “lifeline” in the next UK budget.

FSB Scottish policy convener Andy Willox said: “Businesses in Scotland have been pessimistic about prospects for the last seven quarters.

“While we saw a slight uptick earlier this year, this quarter business confidence in Scotland, and across the UK, has taken a hit.

“Rising inflationary pressure and a weakening domestic economy are the twin drivers of plummeting confidence among UK businesses.

“Scottish small firms will be looking to the Chancellor to extend a lifeline at the budget.

“In such a difficult trading environment, new tax grabs and loss of reliefs for entrepreneurs will exacerbate existing challenges.”

While employment figures published last week showed that unemployment in Scotland had fallen to 3.8 per cent, the FSB is arguing that these figures reinforce the case for measures to cushion the impact of Brexit on Scottish businesses.

Willox said: “It is critical that agreement with the EU27 is now reached on issues such as the length and nature of a transitional deal.

“We would argue that a three year interim period would be sensible, alongside a comprehensive free trade agreement.

“Further, EU citizens working in or running businesses in Scotland must have the right to remain in the country.”