Business confidence in Scotland rose 11 points during January to 42%, according to the latest Business Barometer from Bank of Scotland.
Companies in Scotland reported higher confidence in their own trading prospects month-on-month, up 13 points to 57%. When taken alongside their optimism in the economy, up nine points to 27%, this gives a headline confidence reading of 42% (vs. 31% in December).
Scottish businesses identified their top target areas for growth in the next six months as investing in their team (41%), evolving products and services (28%) and introducing new technology (27%).
A net balance of 42% of Scottish firms also expect to increase staff levels over the next year, up 12 points on last month.
The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.
Overall, UK business confidence rose nine points in January to 44% – its highest level since February 2022 and its strongest start to a year since 2016. Firms’ outlook on the overall UK economy rose ten points from 27% to 37%, while businesses’ optimism in their own trading prospects also climbed three points month-on-month to 51%.
Companies’ hiring intentions increased marginally, with 33% of firms intending to increase staff levels over the next 12 months, up four points on the month before.
London and the North East were the joint most confident parts of the UK in January – each posting a headline confidence of 62% – followed by the West Midlands (56%) and Yorkshire & the Humber (44%).
The East of England (38% in January vs. 45% December) and Northern Ireland (29% vs. 36%) were the only two regions to reporting declining levels of confidence. The majority of the data was collected before the December ONS inflation data was announced on January 17th.
Three of the four sectors tracked in the Barometer reported rises in confidence. The most significant increase was in services which accelerated 15 points to 45%, up from December’s 16 point drop. Manufacturing confidence also increased to 49%, while construction rose eight points to a 10-month high of 45%. There was a more mixed picture in retail however, dipping three points to 41% with anecdotal evidence of weaker footfall and sales in December as shoppers hit the streets earlier than usual in November. Nevertheless, some companies still reported stronger sales over the festive period.
Martyn Kendrick, regional director for Scotland at Bank of Scotland Commercial Banking, said:
“After a dip in confidence at the end of 2023, it’s exciting to see Scottish businesses start the year with such a positive outlook. This follows a festive period with the likes of Edinburgh welcoming more than 50,000 people to its annual Hogmanay Street Party – attendance that’s back to pre-pandemic levels.
“While Scottish businesses have faced a lot of challenges over the past few years and continue to contend with a difficult geopolitical and economic landscape, we are still seeing a strong appetite for growth.
“To maximise these growth opportunities, companies need to prepare to adapt and adjust to external factors. For many, this could mean evolving their offering, diversifying into new markets, or investing in new ways of working. We’ll continue to be by the side of Scottish businesses to help them reap every opportunity to grow and succeed throughout 2024.”
Paul Gordon, managing director for SME and Mid Corporates at Lloyds Bank Commercial Banking, said:
“We’ve seen improved confidence in almost all sectors – a promising turnaround from December’s decline. A seven-month high in manufacturing and similarly positive results in construction make for positive reading. Although the retail sector reported lower confidence, there are reasonable explanations for this when taking consumers’ shopping habits into account coupled with cost-of-living pressures.
“Businesses showed incredible resilience in the face of tough economic circumstances last year, so it’s reassuring to see that confidence has rebounded to start the new year off brightly.
“While the figures do make for more positive reading, there is still caution within the economy. So, it’s imperative that businesses plan effectively for the year ahead to secure their future”.
Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said: “Businesses are feeling more confident following the cautious end to 2023, with this being the strongest start to a year since January 2016. The reduction in inflation, albeit with the recent uptick, and the belief that interest rates may have peaked is likely driving the rise in confidence among firms.
“With ongoing geopolitical issues and a general election on the horizon, businesses will have factored these into their risk radars and will be working to prepare for any potential impacts on their trading prospects.
“Also, half of all companies say they’re planning to increase headcount in the coming year. Despite that and the changes to minimum wage that will come into force in April, expectations for staff pay fell back following last month’s increase”.