Business confidence in Scotland fell 10 points during October to 5%, according to the latest Business Barometer from Bank of Scotland Commercial Banking.
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 barometer, which questions 1,200 businesses monthly - including 100 in Scotland - also showed 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%.
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.”
Business confidence in the manufacturing sector fell for the fifth month in a row, to 13%, down one percentage point; the lowest confidence level since February 2021.
Confidence in the retail sector declined by six 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.
Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, added: “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.”
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