Business Confidence Is 'Bouncing Back'

Business confidence in Scotland has bounced back into positive territory, according to a new report.

Scottish businesses recorded a confidence score of +12.9 for the third quarter (Q3) of this year, up 20.3 points from last quarter's score of -7.4.

However while confidence in Scotland has increased more this quarter than elsewhere in the UK, it is still the least confident part of the UK, with a score well below the British average of +22.4, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).

The study also found that after a period of slowing year-on-year sales volumes, businesses in Scotland now expect their growth to stabilise - or even increase - over the year ahead.

Sales volumes are projected to rise by 4.4% over the next 12 months, up from the 3.9% increase seen during the past year.

However while short-term optimism is increasing, the report found several key challenges have emerged this quarter that may impact on growth prospects in future.

These include skills shortages and the level of competition in the marketplace.

ICAEW Scotland president Andrew Hewett said: "Whilst it is encouraging to see confidence increase, there is still a degree of caution in the air.

"While last year's referendum and the recent general election are now behind us, the Holyrood elections are still to come and this - along with uncertainty about the potential impact of a vote in favour of leaving the EU - seems to be impacting on optimism.

"Many firms seem to be adopting a 'wait and see' approach when it comes to decisions on spending, for example, so it is possible that we will see a similar degree of caution for some time to come.''

The report found that skill shortages is one of the issues seen as a potential challenge further down the line, with the proportion of businesses reporting the availability of non-management skills is more of a challenge now than a year ago rising to 34%, well up from 18% at the same point in 2014.

Another concern facing businesses in Scotland is the level of competition in the marketplace, with 42% reporting this is a greater challenge now than a year ago, compared to 26% stating the same in Q3 2014.

Capital investment annual growth has slowed to 2.3% over the past 12 months, down from 3.9% at the same point in 2014, while businesses suggest that they may lower their investment spending by 0.4% over the coming year.

Grant Thornton UK's managing partner in Scotland Kevin Engel said: "It is encouraging to see that business confidence in Scotland has increased more this quarter than elsewhere in the UK.

"With sales predicted to rise and growth expected to stabilise within the next year, we anticipate fewer insolvencies. This rise in optimism is perhaps also in part a reflection of recent high profile investments in the oil and gas industry and suggestions of a recovery in the sector by 2017.

"However, it is important to acknowledge that Scotland remains the least confident part of the country and not to forget the challenges that many businesses continue to face.''

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