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Scots small firms look to hire as confidence rebounds

A confidence rally among Scotland’s small businesses, an upgraded growth forecast from Ernst & Young, another upbeat survey from the Bank of Scotland and signs that SME confidence across the UK is rising provide fourfold testimony of a slow but steady recovery in our economic prospects.

According to latest quarterly figures from the Federation of Small Business out this week, confidence among Scotland’s small firms is the highest it has been for a year.

A third of small businesses expect prospects to improve over the next three months and the FSB’s Small Business Index, which captures and weighs respondents’ confidence levels, stands at plus 9.

This is the highest it has been since the first quarter of 2012 and is five points above the same time last year.

The study also found that a net balance of four per cent of firms expect to expand their workforce in the next three months, the strongest result since the data series began in 2010.

However, confidence in Scotland is nearly seven points behind the UK average (of  plus 15.9) and one in four Scottish businesses is battling significantly increased costs – up from one in five over the same period last year. 

Scottish businesses have been particularly hard hit by increases in utility bills, which have pushed up costs for nearly six out of ten (58 per cent) – higher than the UK-wide figure of 53 per cent.

There are also tentative signs that the credit market is beginning to ease.  While 56% of respondents still found the cost of credit unaffordable, this is nevertheless lower than the figure of 64% for the same time last year.

Said the FSB’s Scottish Policy Convener, Andy Willox, “Things are looking noticeably brighter.  Of course, it’s all relative and we are coming from a very difficult position, but it’s great that small businesses are feeling more confident and getting ready to expand their workforce.  Confidence and jobs are the two key ingredients of any recovery.”

Meanwhile, the latest Business Monitor from the Bank of Scotland reports expectations for the next six months are rising strongly though performance is broadly unchanged.

In the three months ending May. 28 per cent of firms surveyed increased turnover, 36 per cent experienced static turnover, and over a third (36 per cent) experienced a decrease. This gave a net balance of minus -8 per cent, a slight fall from the – five per cent of the previous quarter. 

The overall net balance of turnover for firms in the production sector in the three months to end May this year was minus 5 per cent, a deterioration on the plus two per cent of the previous quarter. Service businesses are showing a similar fall.

However, trends in the volume of new business were much better with an overall net balance of plus 6 per cent compared to minus 2 per cent of the previous quarter – an encouraging sign of future growth. And the overall net balance for export activity in the latest three months was plus 12 per cent - much better than the minus five per cent of the previous quarter.

Expectations for turnover in the next six months are showing an overall net balance of plus 13 per cent, a large and welcome improvement on the plus one per cent of the previous quarter.

Donald MacRae, chief economist, Bank of Scotland said: “Despite the apparent moderate performance in spring, business expectations for the second half of 2013 have improved significantly to the highest level for five and a quarter years. A return to more vigorous growth in the Scottish economy is dependent on an increase in confidence in both consumers and businesses. Some of this confidence building appears to have begun in the first six months of 2013. If it continues throughout the year the Scottish economy should record a year of growth in 2013."

Finally, the Ernst & Young Item Club has revised upwards its prediction for growth in the Scottish economy this year, if only marginally, from 0.7 per cent to 0.8 per cent. It said it had revised the figure because of a strong end to 2012 and an improving global economic picture.

Its latest summer update forecasts further growth of 1.4 per cent in the Scottish economy next year and a return to pre-crisis growth figures of about 2 per cent in 2015/16.

Finally, business confidence has risen sharply across Britain’s small and medium sized businesses, according to a business survey this week. A sample survey of businesses this month finds that eight out of ten are currently upbeat about the general state of their business and the majority are expecting growth over the coming year – up 37 per cent on a year ago.

The annual “Optimism Index” compiled by AXA, one of the largest business insurers in the UK,  reveals that this time last year 35per cent of SMEs were optimistic about the growth of their business over the following six months. This year this figure has risen to 63per cent.

This optimism is reflected in their planned investment in staff and other resources:

  • 38 per cent of SMEs are planning to take on new employees in 2013 – a rise of over 300 per cent on last year’s figure of 9 per cent (although in reality 34 per cent ended up recruiting)
  • 53 per cent are planning to invest in new equipment or other resources (not people) this year - a doubling of last year’s figure of 25 per cent

Alongside this, 38 per cent of SMEs believe they will make more profit this year than they did last year and a further 38 per cent believe profit levels will be similar. The number who would bet their house on their company making a profit this year has risen by about a third - from 13 per cent to 17 per cent.